Price as an Indicator for Quality in International Trade?

Jørgen Drud Hansen and Jørgen Ulff-Møller Nielsen

International Economic Journal, 2010, vol. 25, issue 3, 419-430

Abstract: This paper examines the relation between price differences and quality differences in an oligopoly model with intra-industry trade, where goods are horizontally as well as vertically differentiated. The analysis demonstrates that the ratio of prices is not linked to the ratio of qualities in any simple way. The paper therefore questions empirical trade studies using unit values as an indicator for the quality of the traded goods. However, we also show that the ratio of prices is a reasonable proxy for the ratio of qualities if sunk cost is dominating in the cost structure.

Date: 2010
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Persistent link: https://EconPapers.repec.org/RePEc:taf:intecj:v:25:y:2011:i:3:p:419-430

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DOI: 10.1080/10168737.2011.580580

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