Working Paper: NBER ID: w7536
Authors: Dongsheng Zhou; Barbara J. Spencer; Ilan Vertinsky
Abstract: 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.
Keywords: No keywords provided
JEL Codes: F12; F13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Bertrand competition (L13) | Subsidy by low-quality country (L15) |
| Bertrand competition (L13) | Tax by high-quality country (H29) |
| Cournot competition (C72) | Tax by low-quality country (H29) |
| Cournot competition (C72) | Subsidy by high-quality country (F35) |