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Pre-emption, Predation, and Minimum Quality Standards

Author

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  • Mina Baliamoune-Lutz
  • Stefan Lutz

Abstract

We present a model of vertical product differentiation and exit where a domestic and a foreign firm face fixed setup costs and quality-dependent costs of production and compete in quality and price in the domestic market. Quality-dependent costs are quadratic in qualities, but independent of the quantities produced. The domestic government may impose a minimum quality standard binding for both foreign and domestic firms. In the presence of an initial cost advantage of the domestic firm, a sufficiently high minimum quality standard set by the domestic government will enable the domestic firm to induce exit of the foreign firm, i.e. to engage in predation. However, the same standard would lead to predation by the foreign firm, if the foreign firm had the initial cost advantage!

Suggested Citation

  • Mina Baliamoune-Lutz & Stefan Lutz, 2010. "Pre-emption, Predation, and Minimum Quality Standards," International Economic Journal, Taylor & Francis Journals, vol. 24(1), pages 111-123.
  • Handle: RePEc:taf:intecj:v:24:y:2010:i:1:p:111-123
    DOI: 10.1080/10168731003589790
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Anna Nagurney & Dong Li, 2014. "Equilibria and dynamics of supply chain network competition with information asymmetry in quality and minimum quality standards," Computational Management Science, Springer, vol. 11(3), pages 285-315, July.
    2. Sang-Ho Lee & Ram Kumar Phuyal, 2013. "Strategic Entry Deterrence by Limiting Qualities under Minimum Quality Standards," The Japanese Economic Review, Japanese Economic Association, vol. 64(4), pages 550-563, December.

    More about this item

    Keywords

    Vertical product differentiation; oligopoly; trade; quality; country asymmetries;

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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