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International Strategic Choice of Minimum Quality Standards and Welfare

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  • STEFAN LUTZ
  • MARIO PEZZINO

Abstract

We study the influence of minimum quality standards in a two-region partial-equilibrium model of vertical product differentiation and trade. Three alternative standard setting arrangements are considered: Full Harmonization, National Treatment and Mutual Recognition. The analysis integrates the choice of a particular standard setting alternative by governments into the model. We provide a set of sufficient conditions for which Mutual Recognition emerges as one regulatory alternative that always improves welfare in both regions when compared to the case without regulation. We show that Mutual Recognition, being the default procedure if governments do not reach a unanimous decision, is the only possible equilibrium of the game.

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File URL: http://hdl.handle.net/10.1111/j.1468-5965.2011.02241.x
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Article provided by Wiley Blackwell in its journal JCMS: Journal of Common Market Studies.

Volume (Year): 50 (2012)
Issue (Month): 4 (07)
Pages: 594-613

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Handle: RePEc:bla:jcmkts:v:50:y:2012:i:4:p:594-613
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Find related papers by JEL classification:
  • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
  • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
  • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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  1. Jaskold Gabszewicz, J. & Thisse, J. -F., 1979. "Price competition, quality and income disparities," Journal of Economic Theory, Elsevier, vol. 20(3), pages 340-359, June.
  2. G. Ecchia & L. Lambertini, 1995. "Minimum Quality Standards and Collusion," Working Papers 235, Dipartimento Scienze Economiche, Universita' di Bologna.
  3. Justin P. Johnson & David P. Myatt, 2003. "Multiproduct Quality Competition: Fighting Brands and Product Line Pruning," American Economic Review, American Economic Association, vol. 93(3), pages 748-774, June.
  4. Valletti, Tommaso M, 2000. "Minimum Quality Standards under Cournot Competition," Journal of Regulatory Economics, Springer, vol. 18(3), pages 235-45, November.
  5. Smith, Alasdair & Venables, Anthony J, 1988. "Completing the Internal Market in the European Community: Some Industry Simulations," CEPR Discussion Papers 233, C.E.P.R. Discussion Papers.
  6. Maxwell, John W., 1998. "Minimum quality standards as a barrier to innovation," Economics Letters, Elsevier, vol. 58(3), pages 355-360, March.
  7. Besanko, David & Donnenfeld, Shabtai & White, Lawrence J, 1988. "The Multiproduct Firm, Quality Choice, and Regulation," Journal of Industrial Economics, Wiley Blackwell, vol. 36(4), pages 411-29, June.
  8. Das, Satya P. & Donnenfeld, Shabtai, 1989. "Oligopolistic competition and international trade : Quantity and quality restrictions," Journal of International Economics, Elsevier, vol. 27(3-4), pages 299-318, November.
  9. Boom, Anette, 1995. "Asymmetric International Minimum Quality Standards and Vertical Differentiation," Journal of Industrial Economics, Wiley Blackwell, vol. 43(1), pages 101-19, March.
  10. Leland, Hayne E, 1979. "Quacks, Lemons, and Licensing: A Theory of Minimum Quality Standards," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1328-46, December.
  11. Crampes, C. & Hollander, A., 1992. "Duopoly and Quality Standards," Papers 92.g, Toulouse - GREMAQ.
  12. Constantatos, Christos & Perrakis, Stylianos, 1998. "Minimum Quality Standards, Entry, and the Timing of the Quality Decision," Journal of Regulatory Economics, Springer, vol. 13(1), pages 47-58, January.
  13. Lutz, Stefan & Lyon, Thomas P & Maxwell, John W, 2000. "Quality Leadership When Regulatory Standards Are Forthcoming," Journal of Industrial Economics, Wiley Blackwell, vol. 48(3), pages 331-48, September.
  14. H. Lutz, Stefan, 2000. "Trade Effects of Minimum Quality Standards with and without Deterred Entry," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 15, pages 314-344.
  15. Scarpa, Carlo, 1998. "Minimum quality standards with more than two firms1," International Journal of Industrial Organization, Elsevier, vol. 16(5), pages 665-676, September.
  16. David P Angel & Michael T Rock, 2005. "Global standards and the environmental performance of industry," Environment and Planning A, Pion Ltd, London, vol. 37(11), pages 1903-1918, November.
  17. Hansen, Jørgen Drud & Møller Nielsen, Jørgen Ulff, 2006. "Economic Integration and Quality Standards in a Duopoly Model with Horizontal and Vertical Product Differentiation," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 21, pages 837-860.
  18. Avner Shaked & John Sutton, 1982. "Relaxing Price Competition Through Product Differentiation," Review of Economic Studies, Oxford University Press, vol. 49(1), pages 3-13.
  19. Carl Shapiro, 1983. "Premiums for High Quality Products as Returns to Reputations," The Quarterly Journal of Economics, Oxford University Press, vol. 98(4), pages 659-679.
  20. Motta, Massimo, 1993. "Endogenous Quality Choice: Price vs. Quantity Competition," Journal of Industrial Economics, Wiley Blackwell, vol. 41(2), pages 113-31, June.
  21. Venables, Anthony J., 1990. "The economic integration of oligopolistic markets," European Economic Review, Elsevier, vol. 34(4), pages 753-769, June.
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Cited by:

  1. Birg, Laura & Voßwinkel, Jan S., 2015. "Minimum quality standards and exports," Center for European, Governance and Economic Development Research Discussion Papers 248, University of Goettingen, Department of Economics.
  2. Stefan Lutz & Mario Pezzino, 2010. "Mixed oligopoly, vertical product differentiation and fixed quality-dependent costs," ICER Working Papers 08-2010, ICER - International Centre for Economic Research.

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