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Minimum quality levels and import tariffs

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  • Hernán, Roberto
  • Kujal, Praveen

Abstract

In a vertically differentiated duopoly the use of import tariffs by an importing country decreases domestic welfare if import tariffs are chosen once the firms have made their quality decisions. In this paper we propose import tariffs that are contingent on some minimum quality level (MQL) being met. A firm is taxed if it fails to meet these MQL. Import tariffs conditional on fulfilling the MQL are welfare improving over free trade. Investment in quality increases, market coverage goes up and consumer surplus increases. Firm profits decrease relative to free trade under such tariffs.

Suggested Citation

  • Hernán, Roberto & Kujal, Praveen, 2003. "Minimum quality levels and import tariffs," UC3M Working papers. Economics we034817, Universidad Carlos III de Madrid. Departamento de Economía.
  • Handle: RePEc:cte:werepe:we034817
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    References listed on IDEAS

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    1. Crampes, Claude & Hollander, Abraham, 1995. "Duopoly and quality standards," European Economic Review, Elsevier, vol. 39(1), pages 71-82, January.
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    6. Herguera, Inigo & Kujal, Praveen & Petrakis, Emmanuel, 2000. "Quantity restrictions and endogenous quality choice," International Journal of Industrial Organization, Elsevier, vol. 18(8), pages 1259-1277, December.
    7. Valletti, Tommaso M, 2000. "Minimum Quality Standards under Cournot Competition," Journal of Regulatory Economics, Springer, vol. 18(3), pages 235-245, November.
    8. Carmichael, Calum M., 1987. "The control of export credit subsidies and its welfare consequences," Journal of International Economics, Elsevier, vol. 23(1-2), pages 1-19, August.
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    11. Goldberg, Pinelopi Koujianou, 1995. "Strategic Export Promotion in the Absence of Government Precommitment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(2), pages 407-426, May.
    12. Russell Cooper & Raymond Riezman, 2013. "Uncertainty and the Choice of Trade Policy in Oligopolistic Industries," World Scientific Book Chapters,in: International Trade Agreements and Political Economy, chapter 16, pages 287-298 World Scientific Publishing Co. Pte. Ltd..
    13. Shaked, Avner & Sutton, John, 1983. "Natural Oligopolies," Econometrica, Econometric Society, vol. 51(5), pages 1469-1483, September.
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