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International Strategic Choice of Minimum Quality Standards and Welfare

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  • Stefan Lutz

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  • Mario Pezzino

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Abstract

We study the influence of minimum quality standards in a two-region partial-equilibrium model of vertical product differentiation and trade. Three alternative standard setting arrangements are considered: Full Harmonization, National Treatment and Mutual Recognition. The analysis integrates the choice of a particular standard setting alternative by governments into the model. We provide a set of sufficient conditions for which Mutual Recognition emerges as one regulatory alternative that always improves welfare in both regions when compared to the case without regulation. We show that Mutual Recognition, being the default procedure if governments do not reach a unanimous decision, is the only possible equilibrium of the game.

Suggested Citation

  • Stefan Lutz & Mario Pezzino, 2009. "International Strategic Choice of Minimum Quality Standards and Welfare," ICER Working Papers 02-2009, ICER - International Centre for Economic Research.
  • Handle: RePEc:icr:wpicer:02-2009
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    References listed on IDEAS

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    1. Scarpa, Carlo, 1998. "Minimum quality standards with more than two firms1," International Journal of Industrial Organization, Elsevier, vol. 16(5), pages 665-676, September.
    2. Crampes, Claude & Hollander, Abraham, 1995. "Duopoly and quality standards," European Economic Review, Elsevier, vol. 39(1), pages 71-82, January.
    3. Das, Satya P. & Donnenfeld, Shabtai, 1989. "Oligopolistic competition and international trade : Quantity and quality restrictions," Journal of International Economics, Elsevier, vol. 27(3-4), pages 299-318, November.
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    5. Motta, Massimo, 1993. "Endogenous Quality Choice: Price vs. Quantity Competition," Journal of Industrial Economics, Wiley Blackwell, vol. 41(2), pages 113-131, June.
    6. Boom, Anette, 1995. "Asymmetric International Minimum Quality Standards and Vertical Differentiation," Journal of Industrial Economics, Wiley Blackwell, vol. 43(1), pages 101-119, March.
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    9. Valletti, Tommaso M, 2000. "Minimum Quality Standards under Cournot Competition," Journal of Regulatory Economics, Springer, vol. 18(3), pages 235-245, November.
    10. H. Lutz, Stefan, 2000. "Trade Effects of Minimum Quality Standards with and without Deterred Entry," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 15, pages 314-344.
    11. Smith, Alasdair & Venables, Anthony J., 1988. "Completing the internal market in the European Community : Some industry simulations," European Economic Review, Elsevier, vol. 32(7), pages 1501-1525, September.
    12. Ecchia, Giulio & Lambertini, Luca, 1997. "Minimum Quality Standards and Collusion," Journal of Industrial Economics, Wiley Blackwell, vol. 45(1), pages 101-113, March.
    13. Hansen, Jørgen Drud & Møller Nielsen, Jørgen Ulff, 2006. "Economic Integration and Quality Standards in a Duopoly Model with Horizontal and Vertical Product Differentiation," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 21, pages 837-860.
    14. Constantatos, Christos & Perrakis, Stylianos, 1998. "Minimum Quality Standards, Entry, and the Timing of the Quality Decision," Journal of Regulatory Economics, Springer, vol. 13(1), pages 47-58, January.
    15. Jaskold Gabszewicz, J. & Thisse, J. -F., 1979. "Price competition, quality and income disparities," Journal of Economic Theory, Elsevier, vol. 20(3), pages 340-359, June.
    16. Venables, Anthony J., 1990. "The economic integration of oligopolistic markets," European Economic Review, Elsevier, vol. 34(4), pages 753-769, June.
    17. Maxwell, John W., 1998. "Minimum quality standards as a barrier to innovation," Economics Letters, Elsevier, vol. 58(3), pages 355-360, March.
    18. Carl Shapiro, 1983. "Premiums for High Quality Products as Returns to Reputations," The Quarterly Journal of Economics, Oxford University Press, vol. 98(4), pages 659-679.
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    20. David P Angel & Michael T Rock, 2005. "Global standards and the environmental performance of industry," Environment and Planning A, Pion Ltd, London, vol. 37(11), pages 1903-1918, November.
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    Cited by:

    1. Chatterjee, Susmita & Chattopadhyay, Srobonti & Chatterjee, Rittwik & Dutta, Debabrata, 2017. "Public Firm in Mixed Oligopolistic Structure: A Theoretical Exposition," MPRA Paper 80073, University Library of Munich, Germany, revised 15 May 2017.
    2. Birg, Laura & Voßwinkel, Jan S., 2015. "Minimum quality standards and exports," Center for European, Governance and Economic Development Research Discussion Papers 248, University of Goettingen, Department of Economics.
    3. Stefan Lutz & Mario Pezzino, 2010. "Mixed oligopoly, vertical product differentiation and fixed qualitydependent costs," The School of Economics Discussion Paper Series 1015, Economics, The University of Manchester.
    4. Chatterjee, Susmita & Datta, Debabrata & Banerjee, Ranjan, 2016. "Performance of mixed oligopoly model in the context of Indian telecom industry," MPRA Paper 72949, University Library of Munich, Germany.
    5. Stefan Lutz & Mario Pezzino, 2014. "Vertically Differentiated Mixed Oligopoly with Quality-dependent Fixed Costs," Manchester School, University of Manchester, vol. 82(5), pages 596-619, September.

    More about this item

    Keywords

    product differentiation; oligopoly; trade; quality standards; policy coordination;

    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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