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Consumer-Benefiting Transport Costs: The Role of Product Innovation in a Vertical Structure

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  • Takauchi Kazuhiro

    (Faculty of Business and Commerce, Kansai University, 3-3-35 Yamate-cho, Suita, Osaka 564-8680, Japan)

  • Mizuno Tomomichi

    (Graduate School of Economics, Kobe University, 2-1 Rokkodai-cho, Nada-ku, Kobe-City, Hyogo 657-8501, Japan)

Abstract

We examine the effects of reduced transport costs on a firm’s horizontal product innovation activity and consumer welfare. It is well established that trade liberalization, including reducing transport costs, could enable innovative practices and make consumers better off. Trade theory, in particular, commonly asserts that zero transport costs maximize consumer surplus. In contrast, we demonstrate that (i) reduced transport costs can enhance a firm’s incentives for investment; however, (ii) positive transport costs (trade barrier) can maximize consumer surplus.

Suggested Citation

  • Takauchi Kazuhiro & Mizuno Tomomichi, 2024. "Consumer-Benefiting Transport Costs: The Role of Product Innovation in a Vertical Structure," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 24(2), pages 661-690.
    • Handle: RePEc:bpj:bejtec:v:24:y:2024:i:2:p:661-690:n:1012
    DOI: 10.1515/bejte-2024-0068
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    Cited by:

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    More about this item

    Keywords

    transport costs; consumer surplus; horizontal product innovation;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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