An Example of Procompetitive Trade Policies
The procompetitive effects of trade policies are analyzed in a foreign duopoly model of vertical product differentiation. A uniform tariff policy complying with the Most Favored Nation (MFN) clause is welfare superior to free trade because of a pure rent-extracting effect. A nonuniform tariff policy yields an even higher level of social welfare because of procompetitive effects. The optimalpolicyissensitivetofirms’ cost asymmetries: if these are high, imports of low quality are subsidized and imports of high quality face a tariff; otherwise, both imports face a tariff. Regional Trade Agreements (RTAs) are examples of such nonuniform tariff policies. They yield higher welfare than free trade because they are procompetitive; moreover, a RTA with a lowquality producing country yields larger gains than a RTA with a high-quality producing country because the former enables the importer to extract foreign rents.
|Date of creation:||2003|
|Date of revision:|
|Contact details of provider:|| Postal: ANN ARBOR MICHIGAN 48109|
Phone: (734) 764-3490
Fax: (734) 763-9181
Web page: http://fordschool.umich.edu/rsie/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Crampes, C. & Hollander, A., 1992.
"Duopoly and Quality Standards,"
92.g, Toulouse - GREMAQ.
- Crampes, C. & Hollander, A., 1991. "Duopoly and Quality Standards," Cahiers de recherche 9128, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
- Crampes, C. & Hollander, A., 1991. "Duopoly and Quality Standards," Cahiers de recherche 9128, Universite de Montreal, Departement de sciences economiques.
- Leahy, Dermot & Neary, J Peter, 1994.
"Learning by Doing, Precommitment and Infant-Industry Protection,"
CEPR Discussion Papers
980, C.E.P.R. Discussion Papers.
- Dermot Leahy & J. Peter Neary, 1994. "Learning by doing, precommitment and infant-industry protection," Working Papers 199405, School of Economics, University College Dublin.
- Zhou, Dongsheng & Spencer, Barbara J. & Vertinsky, Ilan, 2002.
"Strategic trade policy with endogenous choice of quality and asymmetric costs,"
Journal of International Economics,
Elsevier, vol. 56(1), pages 205-232, January.
- Dongsheng Zhou & Barbara J. Spencer & Ilan Vertinsky, 2000. "Strategic Trade Policy with Endogenous Choice of Quality and Asymmetric Costs," NBER Working Papers 7536, National Bureau of Economic Research, Inc.
- Hertel, Thomas W., 1994. "The 'procompetitive' effects of trade policy reform in a small, open economy," Journal of International Economics, Elsevier, vol. 36(3-4), pages 391-411, May.
- Herguera, Inigo & Kujal, Praveen & Petrakis, Emmanuel, 2002. "Tariffs, quality reversals and exit in vertically differentiated industries," Journal of International Economics, Elsevier, vol. 58(2), pages 467-492, December.
- Shaked, Avner & Sutton, John, 1983. "Natural Oligopolies," Econometrica, Econometric Society, vol. 51(5), pages 1469-83, September.
- Krishna, Kala, 1987. "Tariffs versus quotas with endogenous quality," Journal of International Economics, Elsevier, vol. 23(1-2), pages 97-112, August.
- Ulrich Lehmann-Grube, 1997. "Strategic Choice of Quality When Quality is Costly: The Persistence of the High-Quality Advantage," RAND Journal of Economics, The RAND Corporation, vol. 28(2), pages 372-384, Summer.
- John C. Harsanyi & Reinhard Selten, 1988. "A General Theory of Equilibrium Selection in Games," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262582384, December.
- David G. Raboy & Teri Simpson, 1992. "A Methodology for Tariffication of Commodity Trade In the Presence of Quality Differences-The Case of Peanuts," The World Economy, Wiley Blackwell, vol. 15(2), pages 271-281, 03.
- 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.
- Petrakis, Emmanuel & Kujal, Praveen & Herguera, Iñigo, 1994. "Quantity restrictions and endogeneous quality choice," UC3M Working papers. Economics 2969, Universidad Carlos III de Madrid. Departamento de Economía.
- Krishna, Kala, 1990.
"Protection and the Product Line: Monopoly and Product Quality,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 31(1), pages 87-102, February.
- Kala Krishna, 1985. "Protection and the Product Line: Monopoly and Product Quality," NBER Working Papers 1537, National Bureau of Economic Research, Inc.
- Greenaway, David & Hine, Robert C & Milner, Chris, 1995. "Vertical and Horizontal Intra-industry Trade: A Cross Industry Analysis for the United Kingdom," Economic Journal, Royal Economic Society, vol. 105(433), pages 1505-18, November.
- Crozet, M. & Erkel-Rousse, H., 2000. "Trade Performances and the Estimation of Price-Elasticities : Quality Matters," Papiers d'Economie MathÃ©matique et Applications 2000.61, UniversitÃ© PanthÃ©on-Sorbonne (Paris 1).
- Moraga-Gonzalez, Jose Luis & Viaene, Jean-Marie, 2005. "Trade policy and quality leadership in transition economies," European Economic Review, Elsevier, vol. 49(2), pages 359-385, February.
- Collie, D., 1990.
"Export Subsidies And Countervailing Tariffs,"
The Warwick Economics Research Paper Series (TWERPS)
353, University of Warwick, Department of Economics.
- 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.
- 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 407-26, May.
When requesting a correction, please mention this item's handle: RePEc:mie:wpaper:504. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (FSPP Webmaster)
If references are entirely missing, you can add them using this form.