Premium
STRATEGIC TRADE AND DELEGATED COMPETITION WITH ENDOGENOUS QUALITY CHOICE: IS EXPORT POLICY NEEDED?
Author(s) -
WANG YACHIN,
WANG LEONARD F. S.
Publication year - 2011
Publication title -
pacific economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.34
H-Index - 33
eISSN - 1468-0106
pISSN - 1361-374X
DOI - 10.1111/j.1468-0106.2011.00559.x
Subject(s) - incentive , delegation , economics , quality (philosophy) , microeconomics , competition (biology) , product (mathematics) , product differentiation , commercial policy , strategic complements , industrial organization , product market , free trade , control (management) , international trade , cournot competition , ecology , philosophy , geometry , mathematics , management , epistemology , biology
This paper introduces the relative‐performance contract into a vertically differentiated product market and examines how the optimal trade policy and quality choice respond to the incentive mechanism. We find that the high quality firm makes better use of the delegation than the low quality firm in a cross‐border decentralized model. The main difference between the present paper and the strategic trade theory literature is that in this paper the optimal policy is free trade, which does not depend on whether firms compete by prices or quantities, and on whether the goods are substitutes or full complements.