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Minimum Quality Standards and International Trade
Author(s) -
Baltzer Kenneth
Publication year - 2011
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.1467-9396.2011.00996.x
Subject(s) - cournot competition , economics , duopoly , imperfect competition , perfect information , bertrand competition , imperfect , competition (biology) , microeconomics , welfare , quality (philosophy) , partial equilibrium , market failure , government (linguistics) , international economics , international trade , general equilibrium theory , oligopoly , market economy , ecology , linguistics , philosophy , epistemology , biology
This paper investigates the impact of a non‐discriminating minimum quality standard (MQS) on trade and welfare when the market is characterized by imperfect competition and asymmetric information. A simple partial equilibrium model of an international Cournot duopoly is presented in which a domestic and a foreign firm are identical except that the foreign firm faces positive transport costs. Asymmetric information generates a market failure, which the government attempts to alleviate with a MQS. It is found that although firms face the exact same costs of compliance, they will generally prefer different levels of regulation. As a result, international trade disputes are likely to arise even when regulation is non‐discriminating.