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Trade within an industry in the presence of vertical product differentiation and dynamic increasing returns

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  • Francesco Pigliaru

Abstract

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

Suggested Citation

  • Francesco Pigliaru, 1992. "Trade within an industry in the presence of vertical product differentiation and dynamic increasing returns," Open Economies Review, Springer, vol. 3(2), pages 165-179, June.
    • Handle: RePEc:kap:openec:v:3:y:1992:i:2:p:165-179
    DOI: 10.1007/BF01886202
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    References listed on IDEAS

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    1. Falvey, Rodney E., 1981. "Commercial policy and intra-industry trade," Journal of International Economics, Elsevier, vol. 11(4), pages 495-511, November.
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    6. 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.
    7. Alwyn Young, 1991. "Learning by Doing and the Dynamic Effects of International Trade," NBER Working Papers 3577, National Bureau of Economic Research, Inc.
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