Protection and the Product Line: Monopoly and Product Quality
Thereare three points made in this paper. The first is that the question concerning choice of a product line by a monopolist is similar in structure to other adverse selection problems -- and can be analyzed in an elementary way by adapting techniques recently developed for such problems. Such an analysis is developed in the first section. The second is that when a foreign monopolist produces a product line, protection will change the composition of the entire product line.The nature of such effects is studied in the second section and this analysis is greatly simplified by the results of the first sectton. In line with empirical work on the subject, quotas are shown to raise the average quality of imports, while the effects of tariffs are ambiguous.The third concerns the possibility of profit shifting protection which is welfare increasing. The welfare consequences of protection are analyzed in the third section, and are shown to depend crucially on the distribution of consumers.
|Date of creation:||Jan 1985|
|Publication status:||published as International Economic Review Volume 31, No.1 Feb 1990|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
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- Falvey, Rodney E, 1979. "The Composition of Trade within Import-restricted Product Categories," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 1105-1114, October.
- Phlips,Louis, 1983. "The Economics of Price Discrimination," Cambridge Books, Cambridge University Press, number 9780521283946.