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Mutual Recognition for Sale: International Bargaining over Product Standards

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Abstract

We model a two-country bargaining process over the coordination of a horizontally differentiated product standard. We show that the necessary conditions for bargaining to take place are (i) firm heterogeneity and (ii) sufficiently high complying costs. When firms compete à la Cournot in the Home market and when bargaining takes place, our results suggest that mutual recognition of standards, and not the harmonization of standards, inevitably emerges as Home’s optimal choice. We also demonstrate that mutual recognition can maximize global welfare. Our results largely hold when firms compete à la Bertrand.

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  • Cai, Dapeng & Jørgensen, Jan Guldager, 2017. "Mutual Recognition for Sale: International Bargaining over Product Standards," Discussion Papers of Business and Economics 1/2017, University of Southern Denmark, Department of Business and Economics.
  • Handle: RePEc:hhs:sdueko:2017_001
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    File URL: http://www.sdu.dk/-/media/files/om_sdu/institutter/ivoe/disc_papers/disc_2017/dpbe1_2017.pdf?la=en
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    References listed on IDEAS

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    More about this item

    Keywords

    Product standards; mutual recognition; harmonization; international bargaining; lobbying; horizontal differentiation;

    JEL classification:

    • C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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