Does Mutual Recognition of National Minimum Quality Standards Support Regional Convergence?

Stefan Lutz

No 1385, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: In a model of vertical product differentiation, duopolistic firms face quality-dependent costs and compete on quality and price in two segmented markets. Minimum quality standards, set according to the principle of Mutual Recognition, can be used to increase welfare. The results of the one-shot game suggest that standards achieve initial convergence in terms of qualities produced and national welfares. Therefore, the static game is repeated in multiple periods and firms’ qualities in the previous period determine their costs. In an N-period game, quality standards will, in fact, lead to convergence in terms of qualities and national welfares.

Keywords: Oligopoly; Product Differentiation; Quality Standards; Regional Convergence; Trade (search for similar items in EconPapers)
JEL-codes: F12 F13 L13 (search for similar items in EconPapers)
Date: 1996-05
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Citations: View citations in EconPapers (2)

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