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Mutual Recognition of National Minimum Quality Standards may Support International Convergence

  • Stefan Lutz

    ()

  • Mina Baliamoune-Lutz

    ()

In a model of vertical product differentiation, duopolistic firms face quality-dependent costs and compete in quality and price in two segmented markets. Minimum quality standards, set according to the principle of Mutual Recognition, can be used to increase welfare. The results of the one-shot game suggest that standards achieve initial convergence in terms of qualities produced and national welfares. Therefore, the static game is repeated in multiple periods and firms' qualities in the previous period determine their costs. In an N-period game, quality standards will in fact lead to convergence in terms of qualities and national welfares.

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Article provided by Springer in its journal Journal of Industry, Competition and Trade.

Volume (Year): 3 (2003)
Issue (Month): 4 (December)
Pages: 293-311

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Handle: RePEc:kap:jincot:v:3:y:2003:i:4:p:293-311
Contact details of provider: Web page: http://springerlink.metapress.com/link.asp?id=105724

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  1. Motta, M., 1991. "Sunk costs and trade liberalisation," CORE Discussion Papers 1991027, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Massimo MOTTA & Jean-François THISSE & Antonio CABRALES, 1996. "On the Persistence of Leadership or Leapfrogging in International Trade," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 9625, Université de Lausanne, Faculté des HEC, DEEP.
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  5. Lutz, Stefan, 1996. "Vertical Product Differentiation, Quality Standards, and International Trade Policy," CEPR Discussion Papers 1443, C.E.P.R. Discussion Papers.
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  7. Barros, Pedro Luis Pita & Martinez-Giralt, Xavier, 1997. "On the Effects of Anti-dumping Legislation," CEPR Discussion Papers 1590, C.E.P.R. Discussion Papers.
  8. Boom, Anette, 1995. "Asymmetric International Minimum Quality Standards and Vertical Differentiation," Journal of Industrial Economics, Wiley Blackwell, vol. 43(1), pages 101-19, March.
  9. 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.
  10. Lutz, Stefan, 1996. "Does Mutual Recognition of National Minimum Quality Standards Support Regional Convergence?," CEPR Discussion Papers 1385, C.E.P.R. Discussion Papers.
  11. Shapiro, Carl, 1983. "Premiums for High Quality Products as Returns to Reputations," The Quarterly Journal of Economics, MIT Press, vol. 98(4), pages 659-79, November.
  12. Naoto Jinji, 2003. "Strategic policy for product R&D with symmetric costs," Canadian Journal of Economics, Canadian Economics Association, vol. 36(4), pages 993-1006, November.
  13. Uri Ronnen, 1991. "Minimum Quality Standards, Fixed Costs, and Competition," RAND Journal of Economics, The RAND Corporation, vol. 22(4), pages 490-504, Winter.
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  16. Stefan Lutz & Mina Baliamoune-Lutz, 2003. "Mutual Recognition of National Minimum Quality Standards may Support International Convergence," Journal of Industry, Competition and Trade, Springer, vol. 3(4), pages 293-311, December.
  17. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, June.
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