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Vertical product differentiation, minimum quality standards and international trade

Petropoulou, D (2016) Vertical product differentiation, minimum quality standards and international trade Oxford Economic Papers, 65 (2). pp. 372-393.

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This paper develops a two-country, vertically differentiated duopoly model so as to analyse incentives for the formulation of national minimum quality standards in an open economy setting. Markets are segmented and national firms compete in both markets forming an international duopoly. Firms incur quality-dependent variable costs and goods sold domestically and abroad can have distinct qualities, while national quality standards are endogenously determined. International trade links give rise to cross-country externalities that result in inefficient national quality standards, either too lax or too tough relative to the global welfare-maximizing international standard. Trade flows are shown to be lower under Nash equilibrium minimum standards than under world optimum standards. Moreover, if firms specialize in goods of different quality levels, then world optimum standards are unattainable through reciprocal adjustments in national standards, in the absence of lump sum transfers. This suggests limitations in the effectiveness of international negotiations over minimum quality standards.

Item Type: Article
Subjects : Economics
Divisions : Faculty of Arts and Social Sciences > School of Economics
Authors :
Petropoulou, D
Date : October 2016
DOI : 10.1093/oep/gps023
Copyright Disclaimer : © Oxford University Press 2012 All rights reserved
Uncontrolled Keywords : Vertical product differentiation, Quality reversal, International trade, Minimum quality standards
Related URLs :
Depositing User : Symplectic Elements
Date Deposited : 20 Sep 2016 13:50
Last Modified : 31 Oct 2017 18:44

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