Trade within an industry in the presence of vertical product differentiation and dynamic increasing returns

Francesco Pigliaru

Open Economies Review, 1992, vol. 3, issue 2, 165-179

Abstract: This paper investigates a case of trade with dynamic learning, a continuum of varieties of a vertically differentiated product, and two countries differing only slightly in population size. The results are as follows. Since increasing returns continuously allow consumers to afford higher-quality versions of the good, a quality-based product cycle is generally required for the two initial market shares to persist over time; however, with dynamic learning the conditions for such a cycle to take place are severe. Then, in spite of the self-reinforcing nature of the pattern of spezialization, one of the two countries' market segments (the lower-quality one) is likely to shrink endogenously over time. Copyright Kluwer Academic Publishers 1992

Keywords: international trade; increasing returns; vertical product differentiation (search for similar items in EconPapers)
Date: 1992
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DOI: 10.1007/BF01886202

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