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International Coordination of Quality Standards and Vertical Product Differentiation

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  • Lutz, Stefan

Abstract

I study the influence of minimum quality standards in a partial-equilibrium model of vertical product differentiation and trade in which duopolistic firms face quality-dependent costs and compete in quality and price in two segmented markets. Three alternative standard setting arrangements are Full Harmonization, National Treatment and Mutual Recognition. Under either alternative, standards can be found that increase welfare in both regions. The analysis integrates the choice of a particular standard setting alternative by governments into the model. Mutual Recognition emerges as one regulatory alternative that always improves welfare in both regions when compared to the case without regulation. Under certain cost conditions, both regions will prefer Mutual Recognition over all available alternatives.

Suggested Citation

  • Lutz, Stefan, 2003. "International Coordination of Quality Standards and Vertical Product Differentiation," ZEW Discussion Papers 03-41, ZEW - Leibniz Centre for European Economic Research.
    • Handle: RePEc:zbw:zewdip:1350
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    References listed on IDEAS

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    More about this item

    Keywords

    product differentiation; oligopoly; trade; quality standards; policy coordination;
    All these keywords.

    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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