International commodity trade, transport costs, and product differentiation

Colin Carter, James A. Chalfant, Navin Yavapolkul and Christine L. Carroll

Journal of Commodity Markets, 2016, vol. 1, issue 1, 65-76

Abstract: Transport costs and product quality have received increased attention in the international trade literature. Product quality is a particularly important factor in international trade of high-valued commodities. We observe that significant transport costs for a relatively high quality product represent a natural trade barrier. In this case, transport costs may introduce product differentiation, protecting home-country production of the higher quality product and constraining the foreign exporter to shipping a lower quality substitute. With differential transport costs between a higher and a lower quality product, firms in both countries may gain by implicitly coordinating in an increasingly segmented market and choosing a high-price strategy for both products. Home-country producers clearly gain. Through product differentiation in an oligopolistic market, the foreign producers may also gain when the home producers exploit the transport cost advantage. The international orange juice market, with significant trade volumes in both lower quality frozen-concentrated juice and higher quality not-from-concentrate juice, provides compelling evidence supporting this model.

Keywords: Commodity trade; Product differentiation; Orange juice (search for similar items in EconPapers)
JEL-codes: F12 L11 Q17 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jocoma:v:1:y:2016:i:1:p:65-76

DOI: 10.1016/j.jcomm.2016.02.002

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