Quality Standards, Industry Structure, and Welfare in a Global Economy

18 Pages Posted: 15 Apr 2020

See all articles by Carl Gaigné

Carl Gaigné

affiliation not provided to SSRN

Bruno Larue

Université Laval

Date Written: October 2016

Abstract

We study the impact that mimimum quality standards have on industry structure, trade, and welfare when firms can develop their own private standard with a higher quality than the public standard. We introduce vertical differentiation in a firm‐based trade model in which firms differ in terms of their productivity and non‐cooperatively select the quality and price of their product. A higher public standard increases prices set by constrained and unconstrained firms, but the effect on firms' output is generally ambiguous for both types of firms. The most productive firms raise their private standard and enjoy higher profits at the expense of less productive firms. A public standard can increase welfare, especially when there is a high concentration of low productivity domestic firms because of a better allocation of resources.

Keywords: Public standard, private standard, product quality, entry/exit, welfare

Suggested Citation

Gaigné, Carl and Larue, Bruno, Quality Standards, Industry Structure, and Welfare in a Global Economy (October 2016). American Journal of Agricultural Economics, Vol. 98, Issue 5, pp. 1432-1449, 2016, Available at SSRN: https://ssrn.com/abstract=3575999 or http://dx.doi.org/10.1093/ajae/aaw039

Carl Gaigné (Contact Author)

affiliation not provided to SSRN

No Address Available

Bruno Larue

Université Laval ( email )

2425 rue de l'Agriculture
local 4417
Quebec, Quebec G1V 0A6
Canada
418 656 2131 x5098 (Phone)
418 656 7821 (Fax)

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