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Rational incompatibility with international product standards

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  • Barrett, Christopher B.
  • Yang, Yi-Nung

Abstract

This paper considers the incentives of firms to conform to an exogenous international product standard. Product standardization enables traditional, price-based international competition. But the existence of redesign costs or network effects creates market frictions that diminish the incentive to standardize if there already exists a different technology in an established market. This leads to multi-attribute competition between products and will generally reduce trade flows. Not only do incumbent firms using a different technology have an incentive to deviate from the international standard, but a host country government that is also concerned for the welfare of consumers who own the old technology has no incentive to enforce the international standard. Indeed, the government may value deviation from the international standard more than the firm does, thereby creating incentives to adopt and enforce technical barriers to trade. The results highlight the challenge lock-in effects pose to the international standard-setting process.
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Suggested Citation

  • Barrett, Christopher B. & Yang, Yi-Nung, 2001. "Rational incompatibility with international product standards," Journal of International Economics, Elsevier, vol. 54(1), pages 171-191, June.
  • Handle: RePEc:eee:inecon:v:54:y:2001:i:1:p:171-191
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    Cited by:

    1. Toru Kikuchi & Chiharu Kobayashi, 2007. "Network Effects and the Impact of Trade Liberalization," Economics Bulletin, AccessEcon, vol. 6(4), pages 1-7.
    2. Vitor Trindade & Johannes Moenius, 2007. "Networks, Standards and Intellectual Property Rights," Working Papers 0705, Department of Economics, University of Missouri.
    3. John C. Beghin & Miet Maertens & Johan Swinnen, 2017. "Nontariff Measures and Standards in Trade and Global Value Chains," World Scientific Book Chapters,in: Nontariff Measures and International Trade, chapter 2, pages 13-38 World Scientific Publishing Co. Pte. Ltd..
    4. Swinnen, Johan F.M. & Vandemoortele, Thijs, 2009. "Trade, Development, and the Political Economy of Public Standards," 113th Seminar, September 3-6, 2009, Chania, Crete, Greece 58139, European Association of Agricultural Economists.
    5. Mikhail Klimenko & Kamal Saggi, 2004. "Technical Compatibility and the Mode of Foreign Entry under Network Externalities," Working Papers 04-05, NET Institute, revised Oct 2004.
    6. Frank van Tongeren & John Beghin & Stéphane Marette, 2009. "A Cost-Benefit Framework for the Assessment of Non-Tariff Measures in Agro-Food Trade," OECD Food, Agriculture and Fisheries Papers 21, OECD Publishing.
    7. Clougherty, Joseph A. & Grajek, Michał, 2014. "International standards and international trade: Empirical evidence from ISO 9000 diffusion," International Journal of Industrial Organization, Elsevier, vol. 36(C), pages 70-82.
    8. Chevassus-Lozza, Emmanuelle & Latouche, Karine & Majkovic, Darja, 2007. "How Much do Non-Tariff Measures Explain the Border Effect at Entry to the EU Market? The CEECs Agri-Food Exports to EU in the Pre-Accession Period," 2007 Annual Meeting, July 29-August 1, 2007, Portland, Oregon TN 9852, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    9. Walz, Uwe & Woeckener, Bernd, 2003. "Compatibility Decisions, Endogenous Installed Home Bases and the Third-Market Competition," CEPR Discussion Papers 3816, C.E.P.R. Discussion Papers.
    10. Ceyhun Elci, 2006. "The Impact of HPAI of the H5N1 Strain on Economies of Affected Countries," Papers of the Annual IUE-SUNY Cortland Conference in Economics,in: Proceedings of the Conference on Human and Economic Resources, pages 104-117 Izmir University of Economics.
    11. Chevassus-Lozza, Emmanuelle & Latouche, Karine & Majkovic, Darja & Unguru, Manuela, 2008. "The importance of EU-15 borders for CEECs agri-food exports: The role of tariffs and non-tariff measures in the pre-accession period," Food Policy, Elsevier, vol. 33(6), pages 595-606, December.
    12. Deodhar, Satish Y. & Rastogi, Siddhartha K., 2008. "Indo-US Trade in Wheat and Mango: A Game-Theoretic Approach to SPS Standards," IIMA Working Papers WP2008-03-04, Indian Institute of Management Ahmedabad, Research and Publication Department.
    13. Joseph A. Clougherty & Michal Grajek, 2009. "ISO 9000: New form of protectionism or common language in international trade?," ESMT Research Working Papers ESMT-09-006, ESMT European School of Management and Technology.
    14. Ryoma Kitamura, 2015. "Cost Reduction can Decrease Pro t and Welfare in a Monopoly," Discussion Paper Series 133, School of Economics, Kwansei Gakuin University, revised Jul 2015.
    15. Baquero, Maria & Kuroda, Toshifumi, 2015. "Analysis of the role of international network effects on the diffusion of second and third generation mobile communication networks," 26th European Regional ITS Conference, Madrid 2015 127126, International Telecommunications Society (ITS).
    16. repec:ebl:ecbull:v:6:y:2007:i:4:p:1-7 is not listed on IDEAS
    17. Hoekman, Bernard & Mavroidis, Petros C., 2002. "Economic development, competition policy, and the World Trade Organization," Policy Research Working Paper Series 2917, The World Bank.

    More about this item

    JEL classification:

    • F02 - International Economics - - General - - - International Economic Order and Integration
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F15 - International Economics - - Trade - - - Economic Integration
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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