The effects of quotas on vertical intra-industry trade

Stefan Lutz

No B 24-2002, ZEI Working Papers from University of Bonn, ZEI - Center for European Integration Studies

Abstract: A quota on foreign competition will generally lead to quality-upgrading (downgrading) of the low-quality (high-quality) firm, an increase in average quality, a reduction of quality differentiation, and a reduction of domestic consumer surplus, irrespective of whether the foreign firm produces higher or lower quality. Effects of a quota on industry profits and domestic welfare depend crucially on the direction of international vertical differentiation. If the foreign firm produces low quality, both firms' prices and profits rise but domestic welfare falls. This describes well some major effects of a Japanese VER in the US auto market and relevant empirical findings. If the foreign firm produces high quality, foreign profits will fall. Since domestic consumer surplus falls only unsubstantially, domestic profit gains lead to an increase of domestic welfare.

Keywords: trade; quotas; vertical product differentiation; quality-dependent costs (search for similar items in EconPapers)
JEL-codes: F12 F13 L13 (search for similar items in EconPapers)
Date: 2002
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.econstor.eu/bitstream/10419/39462/1/35844375X.pdf (application/pdf)

Related works:
Working Paper: The Effects of Quotas on Vertical Intra-Industry Trade (2002)
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:zbw:zeiwps:b242002

Access Statistics for this paper

More papers in ZEI Working Papers from University of Bonn, ZEI - Center for European Integration Studies Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics ().