Article

Import Quotas Foster Product Imitation in Vertically Differentiated Duopolies

09/2000; DOI: 10.2139/ssrn.267968

ABSTRACT Quotas act as facilitating practices under price competition. Because they relax price competition, they may affect firms' quality choice in very specific ways. We analyze this issue by considering the following stage game: a domestic government chooses an import quota, then a domestic and a foreign firm choose the quality of their product before engaging a price competition. In equilibrium, both firms end up choosing the same quality for a wide range of quota values, when costs for quality do not rise too quickly. Moreover, the optimal policy for the government consists in choosing the quota level which is just sufficient to induce this product imitation. Once its effects on quality choice is taken into account, the quota may thus hurt the foreign firm and increase domestic welfare.

0 Bookmarks
 · 
67 Views
  • Source
    [Show abstract] [Hide abstract]
    ABSTRACT: The authors introduce commodity taxation into a vertical differentiation model with endogenous product selection. They show that a uniform ad valorem tax lowers both qualities, distorts the allocation of consumers between firms, and lowers the consumer prices of both variants. A small uniform tax is always welfare-improving over the no-tax equilibrium. A differentiation of tax rates may or may not be desirable on welfare grounds. If a welfare improvement is possible through a nonuniform tax, it is always the high-quality variant that must be taxed at a higher rate. Copyright 1994 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.
    International Economic Review 08/1994; 35(3):613-33. · 1.56 Impact Factor
  • Source
    [Show abstract] [Hide abstract]
    ABSTRACT: Using the Hotelling approach to product differentiation, this article derives the equilibrium product configurations and prices when two firms enter and sell in two interdependent markets separated by barriers to trade. It shows that product imitation and no trade as well as product differentiation with two-way or one-way trade are all consistent with the equilibrium. Copyright 1995 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.
    International Economic Review 08/1995; 36(3):583-608. · 1.56 Impact Factor
  • [Show abstract] [Hide abstract]
    ABSTRACT: In a duopoly model with vertical differentiation, if the firms do not cover the market, the lower-quality firm chooses a quality level exactly 4/7 of that of the higher-quality firm and chooses a price that is 2/7 of the price of the higher-quality firm. Copyright 1992 by Blackwell Publishing Ltd.
    Journal of Industrial Economics 02/1992; 40(2):229-31. · 1.04 Impact Factor

Full-text (2 Sources)

Download
54 Downloads
Available from
Jun 1, 2014