Quality in open markets: the sumo conjecture

Qualité et commerce international: la stratégie du sumo

Marie-Françoise Calmette (), Maureen Kilkenny, Catherine Loustalan, Isabelle Pechoux () and Christophe Bernard
Additional contact information
Marie-Françoise Calmette: TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement
Catherine Loustalan: TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement
Isabelle Pechoux: TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement
Christophe Bernard: TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement

Post-Print from HAL

Abstract: The spectacular growth in China's export volume over the past two decades has resulted in a sharp increase in the global market share of these products. This situation has significantly affected the industrial structure of developed countries. Facing strong competitive pressure, many sectors in the EU and the USA (e.g., textiles, toys, steel, aluminum, photovoltaic cells) have seen significant portions of their traditional production disappear. This rapid emergence of a developing country as a major player in international trade is unprecedented, and the comparative cost advantage of China in many areas cannot be the unique explanation. In this paper, we identify major reasons for this situation. Using a theoretical model of industrial organization applied to international trade, we investigate the effects of the entry of a large emerging country in the global market. The firms' strategies are the quality and quantity of the produced good in a framework of bilateral trade. In each country, we adopt a representative firm for each industry. We consider a sequential game framework in which the emerging country firm plays first in quality and quantity. We show that choosing a lower quality allows the firm from the large emerging country to enter and settle in the market of the other country. We study the conditions under which this may lead to a less diversified offer and lower quality for consumers. The likelihood of this strategy's success, which we call "sumo," increases with the size of the emerging country and decreases with the difference in willingness to pay for quality among consumers in both countries.

Keywords: International trade; Industrial organization; Quality; North-South competition; Country size; Sequential game; Commerce international; Organisation industrielle; Qualité; Concurrence Nord-Sud; Taille de pays; Jeu séquentiel (search for similar items in EconPapers)
Date: 2018-03
Note: View the original document on HAL open archive server: https://hal.science/hal-04456626v1
References: View references in EconPapers View complete reference list from CitEc
Citations:

Published in Revue Economique, 2018, 69 (2), pp.197-224. ⟨10.3917/reco.692.0197⟩

Downloads: (external link)
https://hal.science/hal-04456626v1/document (application/pdf)

Related works:
Journal Article: Quality in Open Markets: The Sumo Conjecture (2018)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04456626

DOI: 10.3917/reco.692.0197

Access Statistics for this paper

More papers in Post-Print from HAL
Bibliographic data for series maintained by CCSD ().