International Competition in Vertically Differentiated Markets with Innovation and Imitation: Trade Policy Versus Free Trade
Year: 2014
Type: article
Abstract: The competition between firms from developed (DC) and less developed countries (LDC) is typically in vertically differentiated products. We consider a model of price competition between DC and LDC firms with quality choice and imitation, and study the effects of ex post tariffs. The government faces a choice between commitment to free trade and imposing a tariff. Tariffs can lead to change in the rank of qualities compared to free trade. We identify conditions under which this quality reversal takes place, and show that quality reversal is necessary for trade policy to be superior to free trade in welfare terms.
Source: Economica
DOI: 10.1111/ecca.12093
Authors: Eugen Kováč, Krešimir Žigić
Institution: University of Bonn
Language: English
Topic: Global trade and economics
Domain: Social Sciences
Open Access status: green
Funder: Global Development Network
OpenAlex ID: W3122811796