NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Strategic Trade Policy with Endogenous Choice of Quality and Asymmetric Costs

Dongsheng Zhou, Barbara J. Spencer, Ilan Vertinsky

NBER Working Paper No. 7536
Issued in February 2000
NBER Program(s):   ITI

This paper examines the strategic trade policy incentives for investment policies towards quality improvements in a vertically differentiated exporting industry. Firms first compete in qualities and then export to a third country market based on Bertrand or Cournot competition. Optimal policies are asymmetric across the two producing countries. Under Bertrand competition, the low-quality country subsidizes investment to raise export quality, while the high-quality country imposes a tax so as to reduce the quality of its already high quality exports. Under Cournot competition, the results are reversed with a tax in the low-quality country and a subsidy in the high-quality country.

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Document Object Identifier (DOI): 10.3386/w7536

Published: Zhou, Dongsheng, Barbara J. Spencer and Ilan Vertinsky. "Strategic Trade Policy With Endogenous Choice Of Quality And Asymmetric Costs," Journal of International Economics, 2002, v56(1,Jan), 205-232.

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