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On tariff and quality innovation in a market with discrete preferences

Author

Listed:
  • Acharyya, Rajat
  • Banerjee, Swapnendu

Abstract

In a market for a quality-differentiated good with heterogeneous set of consumers and a local firm facing competitive imports from abroad, we examine private and social incentives for quality innovation. For differential tariff regime, we show that both the private and social gains increase with the tariff protection for the low-quality segment of the domestic market for any given tariff on high-quality imports. But for some very high costs of innovation, the local firm may not undertake a socially desirable innovation. The pro-competitive effect, on the other hand, ensures that quality-distortion-at-the-bottom occurs only for very high levels of tariffs.

Suggested Citation

  • Acharyya, Rajat & Banerjee, Swapnendu, 2012. "On tariff and quality innovation in a market with discrete preferences," Economic Modelling, Elsevier, vol. 29(3), pages 917-925.
  • Handle: RePEc:eee:ecmode:v:29:y:2012:i:3:p:917-925
    DOI: 10.1016/j.econmod.2011.12.012
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    References listed on IDEAS

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    More about this item

    Keywords

    Quality innovation; Tariff; Quality distortion; Social gain from innovation;

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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