Minimum Quality Standards and Exports
23 Pages Posted: 12 Jun 2015
Date Written: June 11, 2015
Abstract
This paper studies the interaction of a minimum quality standard and exports in a vertical product differentiation model when firms sell global products. If ex ante quality of foreign firms is lower (higher) than the quality of exporting firms, a mild minimum quality standard in the home market hinders (supports) exports. The minimum quality standard increases quality in both markets. A welfare maximizing minimum quality standard is always lower under trade than under autarky. A Minimum quality standard reduces profits for the exporting firm. It increases domestic welfare, but reduces welfare in the export market.
Keywords: minimum quality standard, vertical differentiation, exports
JEL Classification: F12, L13, L50
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