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Sourcing product quality for foreign market entry

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  • Onur A. Koska

    (University of Canterbury)

Abstract

This study employs a differentiated Cournot model with both horizontal and vertical product differentiation. It scrutinizes the implications of frictions over manufacturing high quality (upstream market power) on the endogenous foreign market entry mode and product quality choice. Both high-quality exports and subsidiary sales require high-quality inputs supplied by a monopoly upstream firm, and thus are costly. Relative product quality, product substitutability, and product-specific trade costs are the key for the variation in input/output prices, sales and the markup between an exporter and a multinational, and have significant trade policy implications for high-quality exports and subsidiary sales.

Suggested Citation

  • Onur A. Koska, 2020. "Sourcing product quality for foreign market entry," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 156(3), pages 669-702, August.
  • Handle: RePEc:spr:weltar:v:156:y:2020:i:3:d:10.1007_s10290-020-00375-1
    DOI: 10.1007/s10290-020-00375-1
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    Cited by:

    1. John Gilbert & Onur A. Koska & Reza Oladi, 2020. "International Trade, Upstream Market Power, and Endogenous Mode of Downstream Competition," Working Papers in Economics 20/22, University of Canterbury, Department of Economics and Finance.

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    More about this item

    Keywords

    Vertical product differentiation; Horizontal product differentiation; Upstream market power; Trade; Foreign direct investment;
    All these keywords.

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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