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Mutual Recognition of National Minimum Quality Standards may Support International Convergence

  • Lutz, Stefan

In a model of vertical product differentiation, duopolistic firms face qualitydependent costs and compete in quality and price in two segmented markets. Minimum quality standards, set according to the principle of Mutual Recognition, can be used to increase welfare. The results of the one-shot game suggest that standards achieve initial convergence in terms of qualities produced and national welfares. Therefore, the static game is repeated in multiple periods and firms' qualities in the previous period determine their costs. In an N-period game, quality standards will in fact lead to convergence in terms of qualities and national welfares.

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Paper provided by ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research in its series ZEW Discussion Papers with number 03-17.

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Date of creation: 2003
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Handle: RePEc:zbw:zewdip:961
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  1. Motta, Massimo & Thisse, Jacques-Francois & Cabrales, Antonio, 1997. "On the Persistence of Leadership or Leapfrogging in International Trade," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 38(4), pages 809-24, November.
  2. Lutz, Stefan, 1996. "Trade Effects of Minimum Quality Standards with and without Deterred Entry," CEPR Discussion Papers 1384, C.E.P.R. Discussion Papers.
  3. Lutz, Stefan, 1996. "Vertical Product Differentiation, Quality Standards, and International Trade Policy," CEPR Discussion Papers 1443, C.E.P.R. Discussion Papers.
  4. 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.
  5. Crampes, C. & Hollander, A., 1991. "Duopoly and Quality Standards," Cahiers de recherche 9128, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  6. Shaked, Avner & Sutton, John, 1982. "Relaxing Price Competition through Product Differentiation," Review of Economic Studies, Wiley Blackwell, vol. 49(1), pages 3-13, January.
  7. Naoto Jinji, 2003. "Strategic policy for product R&D with symmetric costs," Canadian Journal of Economics, Canadian Economics Association, vol. 36(4), pages 993-1006, November.
  8. Lutz, Stefan, 2003. "Mutual Recognition of National Minimum Quality Standards may Support International Convergence," ZEW Discussion Papers 03-17, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  9. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, June.
  10. Motta, Massimo, 1992. "Sunk Costs and Trade Liberalisation," Economic Journal, Royal Economic Society, vol. 102(412), pages 578-87, May.
  11. Leland, Hayne E, 1979. "Quacks, Lemons, and Licensing: A Theory of Minimum Quality Standards," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1328-46, December.
  12. Shapiro, Carl, 1983. "Premiums for High Quality Products as Returns to Reputations," The Quarterly Journal of Economics, MIT Press, vol. 98(4), pages 659-79, November.
  13. Lutz, Stefan, 1996. "Does Mutual Recognition of National Minimum Quality Standards Support Regional Convergence?," CEPR Discussion Papers 1385, C.E.P.R. Discussion Papers.
  14. Barros, Pedro Pita & Martinez-Giralt, Xavier, 1999. "On the effects of antidumping legislation," Regional Science and Urban Economics, Elsevier, vol. 29(1), pages 53-72, January.
  15. Motta, Massimo & Thisse, Jacques-Francois, 1994. "Does environmental dumping lead to delocation?," European Economic Review, Elsevier, vol. 38(3-4), pages 563-576, April.
  16. Boom, Anette, 1995. "Asymmetric International Minimum Quality Standards and Vertical Differentiation," Journal of Industrial Economics, Wiley Blackwell, vol. 43(1), pages 101-19, March.
  17. Uri Ronnen, 1991. "Minimum Quality Standards, Fixed Costs, and Competition," RAND Journal of Economics, The RAND Corporation, vol. 22(4), pages 490-504, Winter.
  18. 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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