Standards and protection
This paper examines the behavior of a country that imposes a minimum standard on a good produced both by a domestic firm and by a foreign competitor, and where the latter also supplies its own market. Production costs rise with the standard, and the foreign firm incurs a fixed setup cost if it produces at two standard levels. When the domestic government raises the minimum standard, the foreign producer has to choose between sacrificing exports, facing higher production cost on its entire output, or incurring the fixed setup cost. Depending on the size of the foreign market and the fixed setup cost, the domestic firm will lobby for the lowest minimum standard that excludes the foreign firm or for no standard at all. When consumption of the good produces an externality, the domestic social planner sets a minimum standard which is a non-increasing function of the size of the foreign market. When an externality is present, we show that the planner is always protectionist in the sense that it chooses a higher standard than the one it would set if both firms were domestic.
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References listed on IDEAS
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- Kennedy Peter W., 1994. "Equilibrium Pollution Taxes in Open Economies with Imperfect Competition," Journal of Environmental Economics and Management, Elsevier, vol. 27(1), pages 49-63, July.
- Boom, Anette, 1995. "Asymmetric International Minimum Quality Standards and Vertical Differentiation," Journal of Industrial Economics, Wiley Blackwell, vol. 43(1), pages 101-19, March.
- Eduardo Engel, 1996. "Uvas envenenadas, vacas locas y proteccionismo," Documentos de Trabajo 9, Centro de Economía Aplicada, Universidad de Chile.
- Chambers, Robert G. & Weiss, Michael, 1992. "Revisiting minimum-quality standards," Economics Letters, Elsevier, vol. 40(2), pages 197-201, October.
- Brander, James A. & Spencer, Barbara J., 1985.
"Export subsidies and international market share rivalry,"
Journal of International Economics,
Elsevier, vol. 18(1-2), pages 83-100, February.
- James A. Brander & Barbara J. Spencer, 1984. "Export Subsidies and International Market Share Rivalry," NBER Working Papers 1464, National Bureau of Economic Research, Inc.
- Analysis, A Welfare & Das, Satya P. & Donnenfeld, Shabtai, 1987. "Trade policy and its impact on quality of imports," Journal of International Economics, Elsevier, vol. 23(1-2), pages 77-95, August.
- 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.
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