A simple model of quality heterogeneity and international trade

Document Type

Article

Publication Date

1-1-2013

Abstract

This paper develops a trade model with firm-specific quality heterogeneity in markets where firms face the threat of imitation and engage in limit-pricing strategies. Firms producing high-quality (high-price) products export, whereas firms producing lower-quality (lower-price) products serve the domestic market. Trade liberalization raises the average domestic markup and increases the number of products consumed in each country. However, the impact of trade liberalization on the average export markup depends on the nature of liberalization. Although the presence of markups renders the laissez-faire equilibrium suboptimal, trade liberalization increases national and global welfare. © 2012 Elsevier B.V.

Publication Source (Journal or Book title)

Journal of Economic Dynamics and Control

First Page

68

Last Page

83

This document is currently not available here.

Share

COinS