Harmonization versus Mutual Recognition: Some Pitfalls for the Coordination of Product Standards Under Imperfect Competition

Discussion Papers on Business and Economics, University of Southern Denmark, 23/2014

19 Pages Posted: 22 Dec 2014

See all articles by Jan Guldager Jørgensen

Jan Guldager Jørgensen

University of Southern Denmark - Department of Economics

Philipp J. H. Schröder

Aarhus University - School of Business and Social Sciences

Date Written: December 21, 2014

Abstract

The present paper examines trade liberalization driven by the coordination of product standards. For oligopolistic firms situated in separate markets that are initially sheltered by national standards, mutual recognition of standards implies entry and reduced profits at home paired with the opportunity to start export sales. In contrast, harmonization, in particular the prospect that one's own national (but not the foreign) standard becomes the only globally accepted standard, opens the foreign market without balancing entry at home. We study these scenarios in a reduced form lobby game with two countries and three firms, where firms first lobby for the policy coordination regime (harmonization versus mutual recognition), and subsequently, in case of harmonization, the global standard is auctioned among the firms. We discuss welfare effects and conclude with policy implications. In particular, harmonized standards may fail to harvest the full pro-competitive effects from trade liberalization compared to mutual recognition; moreover, the issue is most pronounced in markets featuring price competition.

Keywords: Standard regimes, harmonization, technical trade barriers, NTBs, Cournot competition, Bertrand competition

JEL Classification: F12, F13, F15

Suggested Citation

Jørgensen, Jan Guldager and Schröder, Philipp J. H., Harmonization versus Mutual Recognition: Some Pitfalls for the Coordination of Product Standards Under Imperfect Competition (December 21, 2014). Discussion Papers on Business and Economics, University of Southern Denmark, 23/2014, Available at SSRN: https://ssrn.com/abstract=2541241 or http://dx.doi.org/10.2139/ssrn.2541241

Jan Guldager Jørgensen (Contact Author)

University of Southern Denmark - Department of Economics ( email )

Faculty of Social Sciences
Campusvej 55
DK-5230 Odense M
Denmark
+45 6550 3270 (Phone)
+45 6613 0507 (Fax)

Philipp J. H. Schröder

Aarhus University - School of Business and Social Sciences ( email )

Haslegaardsvej 10
DK-8210 Aarhus, 8210
Denmark

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