Trade within an industry in the presence of vertical product differentiation and dynamic increasing returns
This paper investigates a case of trade with dynamic learning, a continuum of varieties of a vertically differentiated product, and two countries differing only slightly in population size. The results are as follows. Since increasing returns continuously allow consumers to afford higher-quality versions of the good, a quality-based product cycle is generally required for the two initial market shares to persist over time; however, with dynamic learning the conditions for such a cycle to take place are severe. Then, in spite of the self-reinforcing nature of the pattern of spezialization, one of the two countries' market segments (the lower-quality one) is likely to shrink endogenously over time. Copyright Kluwer Academic Publishers 1992
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Volume (Year): 3 (1992)
Issue (Month): 2 (June)
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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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- Krugman, Paul, 1987. "The narrow moving band, the Dutch disease, and the competitive consequences of Mrs. Thatcher : Notes on trade in the presence of dynamic scale economies," Journal of Development Economics, Elsevier, vol. 27(1-2), pages 41-55, October.
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3099, National Bureau of Economic Research, Inc.
- Falvey, Rodney E., 1981. "Commercial policy and intra-industry trade," Journal of International Economics, Elsevier, vol. 11(4), pages 495-511, November.
- Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
- Alwyn Young, 1991. "Learning by Doing and the Dynamic Effects of International Trade," The Quarterly Journal of Economics, Oxford University Press, vol. 106(2), pages 369-405.
- Flam, Harry & Helpman, Elhanan, 1987. "Vertical Product Differentiation and North-South Trade," American Economic Review, American Economic Association, vol. 77(5), pages 810-822, December.
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