A simple model of quality heterogeneity and international trade

Elias Dinopoulos and Bulent Unel ()

Journal of Economic Dynamics and Control, 2013, vol. 37, issue 1, 68-83

Abstract: This paper develops a trade model with firm-specific quality heterogeneity in markets where firms face the threat of imitation and engage in limit-pricing strategies. Firms producing high-quality (high-price) products export, whereas firms producing lower-quality (lower-price) products serve the domestic market. Trade liberalization raises the average domestic markup and increases the number of products consumed in each country. However, the impact of trade liberalization on the average export markup depends on the nature of liberalization. Although the presence of markups renders the laissez-faire equilibrium suboptimal, trade liberalization increases national and global welfare.

Keywords: Firm heterogeneity; Monopolistic competition; Product quality; Trade costs; Trade liberalization (search for similar items in EconPapers)
JEL-codes: F10 F12 F13 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Related works:
Working Paper: A Simple Model of Quality Heterogeneity and International Trade (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:37:y:2013:i:1:p:68-83

DOI: 10.1016/j.jedc.2012.07.007

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