Enforcing Domestic Quality Dominance through Quotas*
Nicolas Boccard () and
Review of International Economics, 2005, vol. 13, issue 2, 250-261
We study duopoly competition between a domestic and a foreign firm who first choose their quality and then compete in prices in the domestic market. As is well known, the free‐trade equilibrium exhibits quality differentiation and indeterminacy of the quality leader. We show that an import quota can enforce, as the unique subgame‐perfect equilibrium outcome, the quality ranking that favors the domestic producer and thereby can increase domestic welfare.
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