On Tariff and Quality Innovation in a Market with Discrete Preferences

Economic Modeling 29, 917-25, 2012

Posted: 3 Jun 2020

See all articles by Swapnendu Banerjee

Swapnendu Banerjee

Jadavpur University, Department of Economics; Jadavpur University, Calcutta

Rajat Acharyya

Department of Economics, Jadavpur University

Date Written: 2012

Abstract

In a market for a quality-differentiated good with heterogeneous set of consumers and a local firm facing competitive imports from abroad, we examine private and social incentives for quality innovation. For differential tariff regime, we show that both the private and social gains increase with the tariff protection for the low-quality segment of the domestic market for any given tariff on high-quality imports. But for some very high costs of innovation, the local firm may not undertake a socially desirable innovation. The pro-competitive effect, on the other hand, ensures that quality-distortion-at-the-bottom occurs only for very high levels of tariffs.

Keywords: Quality Innovation, Tariff, Quality Distortion, Social Gain From Innovation

JEL Classification: F13, L12, L15

Suggested Citation

Banerjee, Swapnendu and Acharyya, Rajat, On Tariff and Quality Innovation in a Market with Discrete Preferences (2012). Economic Modeling 29, 917-25, 2012, Available at SSRN: https://ssrn.com/abstract=3593276

Swapnendu Banerjee

Jadavpur University, Department of Economics ( email )

Kolkata, 700032
India
91-9330606340 (Phone)

Jadavpur University, Calcutta ( email )

Department of Economics
Calcutta 700032, West Bengal 700032
India
91-9330606340 (Phone)

Rajat Acharyya (Contact Author)

Department of Economics, Jadavpur University ( email )

188, Raja S.C. Mallick Rd, Kolkata 700032
Calcutta, West Bengal 700032
India

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