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Harmonization versus Mutual Recognition: Some pitfalls for the coordination of product standards under imperfect competition

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The present paper examines trade liberalization driven by the coordination of product standards. For oligopolistic firms situated in separate markets that are initially sheltered by national standards, mutual recognition of standards implies entry and reduced profits at home paired with the opportunity to start export sales. In contrast, harmonization, in particular the prospect that one's own national (but not the foreign) standard becomes the only globally accepted standard, opens the foreign market without balancing entry at home. We study these scenarios in a reduced form lobby game with two countries and three firms, where firms first lobby for the policy coordination regime (harmonization versus mutual recognition), and subsequently, in case of harmonization, the global standard is auctioned among the firms. We discuss welfare effects and conclude with policy implications. In particular, harmonized standards may fail to harvest the full pro-competitive effects from trade liberalization compared to mutual recognition; moreover, the issue is most pronounced in markets featuring price competition.

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File URL: http://static.sdu.dk/mediafiles//0/4/4/%7B0449AF91-9468-45DE-98A9-EA4E704E9690%7Ddpbe23_2014.pdf
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Paper provided by Department of Business and Economics, University of Southern Denmark in its series Discussion Papers of Business and Economics with number 23/2014.

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Length: 18 pages
Date of creation: 21 Dec 2014
Handle: RePEc:hhs:sdueko:2014_023
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Department of Business and Economics, University of Southern Denmark, Campusvej 55, DK-5230 Odense M, Denmark

Phone: 65 50 32 33
Fax: 65 50 32 37
Web page: http://www.sdu.dk/ivoe
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  1. Gabriel Felbermayr & Benjamin Jung, 2011. "Sorting It Out: Technical Barriers to Trade and Industry Productivity," Open Economies Review, Springer, vol. 22(1), pages 93-117, February.
  2. Grossman, Gene M & Helpman, Elhanan, 1994. "Protection for Sale," American Economic Review, American Economic Association, vol. 84(4), pages 833-850, September.
  3. Gianluca Orefice & Nadia Rocha, 2014. "Deep Integration and Production Networks: An Empirical Analysis," The World Economy, Wiley Blackwell, vol. 37(1), pages 106-136, 01.
  4. Maggie Xiaoyang Chen & Aaditya Mattoo, 2008. "Regionalism in standards: good or bad for trade?," Canadian Journal of Economics, Canadian Economics Association, vol. 41(3), pages 838-863, August.
  5. James E. Anderson & Eric van Wincoop, 2004. "Trade Costs," Journal of Economic Literature, American Economic Association, vol. 42(3), pages 691-751, September.
  6. Chen, Natalie, 2004. "Intra-national versus international trade in the European Union: why do national borders matter?," Journal of International Economics, Elsevier, vol. 63(1), pages 93-118, May.
  7. Limão, Nuno & Tovar, Patricia, 2011. "Policy choice: Theory and evidence from commitment via international trade agreements," Journal of International Economics, Elsevier, vol. 85(2), pages 186-205.
  8. Maggie Xiaoyang Chen & John Wilson & Tsunehiro Otsuki, 2008. "Standards and export decisions: Firm-level evidence from developing countries," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 17(4), pages 501-523.
  9. Daniel Sturm, 2006. "Product standards, trade disputes, and protectionism," Canadian Journal of Economics, Canadian Economics Association, vol. 39(2), pages 564-581, May.
  10. Derek Bunn & Georg Zachmann, 2010. "Inefficient arbitrage in inter-regional electricity transmission," Journal of Regulatory Economics, Springer, vol. 37(3), pages 243-265, June.
  11. Jacques Pelkmans, 2012. "Mutual Recognition: economic and regulatory logic in goods and services," Bruges European Economic Research Papers 24, European Economic Studies Department, College of Europe.
  12. 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, 09.
  13. Jacques Pelkmans, 2012. "Mutual Recognition: Economic and Regulatory Logic in Goods and Services," Chapters,in: Research Handbook on the Economics of European Union Law, chapter 6 Edward Elgar Publishing.
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