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A Note on Strategic Trade Policy and Endogenous Quality Choice *
Author(s) -
Toshimitsu Tsuyoshi,
Jinji Naoto
Publication year - 2008
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/j.1467-9396.2007.00729.x
Subject(s) - cournot competition , economics , duopoly , marginal cost , microeconomics , production (economics) , bertrand competition , competition (biology) , investment (military) , quality (philosophy) , commercial policy , sign (mathematics) , competition policy , international economics , oligopoly , monopoly , ecology , mathematical analysis , philosophy , mathematics , epistemology , politics , political science , law , biology
This paper shows that some of the main policy implications in Park (2001) and Zhou, Spencer, and Vertinsky (2002) are sensitive to their assumptions on marginal production costs. The unilaterally optimal policy for investment towards quality improvement is analyzed, assuming constant and non‐negative marginal production costs under vertically differentiated international duopoly. If marginal production costs are different across firms, the optimal policy for each exporting country may be opposite in its sign from that shown by the existing papers under Bertrand competition. The policy reversal may also occur for the low‐quality exporting country under Cournot competition.