Enforcing Domestic Quality Dominance through Quotas
We study duopoly competition between a domestic and a foreign firm who first choose their quality and then compete in prices in the domestic market. As is well known, the free-trade equilibrium exhibits quality differentiation and indeterminacy of the quality leader. We show that an import quota can enforce, as the unique subgame-perfect equilibrium outcome, the quality ranking that favors the domestic producer and thereby can increase domestic welfare. Copyright Blackwell Publishing Ltd 2005..
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Volume (Year): 13 (2005)
Issue (Month): 2 (May)
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