Product Quality and Strategic Asymmetry in International Trade

John Gilbert, Onur Koska and Reza Oladi

Working Papers in Economics from University of Canterbury, Department of Economics and Finance

Abstract: In a duopoly trade model with both horizontal and vertical product differentiation, we examine the endogenous choice of quantities and prices as strategic variables. We show that strategic asymmetry (such that a potential exporter commits to a quantity contract, while a local rival commits to a price contract) can be an equilibrium outcome when the relative product quality of the foreign variety is sufficiently high and trade costs are sufficiently low. A lower degree of horizontal product differentiation can make strategic asymmetry more likely. By endogenizing the quality choice, we also establish the conditions under which product quality choice gives rise to strategic asymmetry.

Keywords: International trade; product quality; horizontal product differentiation; Cournot- Bertrand-Nash equilibrium (search for similar items in EconPapers)
JEL-codes: D43 F12 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2020-03-01
New Economics Papers: this item is included in nep-com, nep-ind and nep-int
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:cbt:econwp:20/05

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