Consumer-benefiting transport cost: The role of product innovation in a vertical structure

Kazuhiro Takauchi and Tomomichi Mizuno

No 2017, Discussion Papers from Graduate School of Economics, Kobe University

Abstract: We study the effects of a reduction of transport cost on the firm's activity of product innovation and on consumer welfare. Firms engage in product R&D that increases the degree of product differentiation, purchase intermediate inputs from an exclusive supplier, and export their products to the foreign market paying a per-unit transport cost. Trade theory commonly asserts that zero transport cost maximizes consumer surplus. Contrary to this standard belief, we show that a positive transport cost can maximize consumer surplus. We also consider more general effects of R&D and show that our main results hold even in such case.

Pages: 28 pages
Date: 2020-09
New Economics Papers: this item is included in nep-tid
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Citations: View citations in EconPapers (2)

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http://www.econ.kobe-u.ac.jp/RePEc/koe/wpaper/2020/2017R.pdf (application/pdf)

Related works:
Journal Article: Consumer-Benefiting Transport Costs: The Role of Product Innovation in a Vertical Structure (2024)
Working Paper: Consumer-benefiting transport cost: The role of product innovation in a vertical structure (2019)
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