Suchergebnisse

I present a model of vertical product differentiation and exit where a domestic and a foreign firm face fixed setup costs and quality-dependent costs of production and compete in quality and price in the domestic market. Quality-dependent costs are quadratic in qualities, but independent of the quantities produced. The domestic government may impose a minimum quality standard binding for both foreign and domestic firms. In the present of an initial cost advantage of the domestic firm, a sufficiently high minimum quality standard set by the domestic government will enable the domestic firm to induce exit of the foreign firm, i.e. to engage in predation. However, the same standard would lead to predation by the foreign firm, if the foreign firm had the initial cost advantage!

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.

The ongoing discussion of U.S.-Japanese trade relations suggests that national differences such as in the institutional environment may be relevant for assessing international trade policies. However, economic trade theory often assumes countries to be organized around common notions of complete markets. This paper compares two alternative modes of trade policy analysis by juxtaposing the "economic" view inherent in Gene Grossman's work on "Japan's Innovation and Trade" with the "political" view of "Japanese-American Relations" expressed by Chalmers Johnson. A synthesis is attempted with the help of some remarks on "New Trade Theory's Implications for Policy Analysis" by John Pomery.