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Vertical Product Differentiation, Quality Standards, and International Trade Policy

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  • Lutz, Stefan

Abstract

This paper studies the influence of minimum quality standards in a partial-equilibrium model of vertical product differentiation and trade in which duopolistic firms face quality-dependent costs and compete on quality and price in two segmented markets. Three alternative standard setting arrangements are Full Harmonization, National Treatment and Mutual Recognition. Under these alternatives, standards can be found that increase welfare in both regions. The analysis integrates the governments’ choice of a particular standard setting alternative into the model. Mutual Recognition emerges as one regulatory alternative that always improves welfare in both regions when compared to the case without regulation. Under certain cost conditions, both regions will prefer Mutual Recognition over the alternatives.

Suggested Citation

  • Lutz, Stefan, 1996. "Vertical Product Differentiation, Quality Standards, and International Trade Policy," CEPR Discussion Papers 1443, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:1443
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    Citations

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    Cited by:

    1. T.Huw Edwards, 2007. "Horizontal Regulatory Protection. Its appeal and implictions in a linear Cournot duopoly," Discussion Paper Series 2007_05, Department of Economics, Loughborough University, revised Feb 2007.
    2. Stefan Lutz, 1997. "Vertical product differentiation and entry deterrence," Journal of Economics, Springer, vol. 65(1), pages 79-102, February.
    3. 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.
    4. T.Huw Edwards, 2009. "Regulatory Protection When Firms Move First," Discussion Paper Series 2009_19, Department of Economics, Loughborough University, revised Nov 2009.
    5. Werner Smolny, 2003. "Determinants of innovation behaviour and investment estimates for west-german manufacturing firms," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 12(5), pages 449-463.
    6. Huw Edwards & Joanna Poyago-Theotoky, 2013. "Regulatory Protection When Firms Decide First on Technical Collaboration and R&D," Review of International Economics, Wiley Blackwell, vol. 21(4), pages 750-764, September.
    7. Lutz, Stefan H., 2002. "The Effects of Quotas on Vertical Intra-Industry Trade," ZEW Discussion Papers 02-61, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    8. Lutz, Stefan, 2003. "International Coordination of Quality Standards and Vertical Product Differentiation," ZEW Discussion Papers 03-41, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    9. T. Huw Edwards, 2004. "Trade and Strategic Regulatory Bias in Monopolistic Industries," Discussion Paper Series 2004-21, Department of Economics, Loughborough University, revised Sep 2004.

    More about this item

    Keywords

    Oligopoly; Product Differentiation; Quality Standards; Trade;

    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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