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Trade within an industry in the presence of vertical product differentiation and dynamic increasing returns

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  • Francesco Pigliaru

Abstract

This paper investigates a case of trade with dynamic learning, a continuum of varieties of a vertically differentiated product, and two countries differing only slightly in population size. The results are as follows. Since increasing returns continuously allow consumers to afford higher-quality versions of the good, a quality-based product cycle is generally required for the two initial market shares to persist over time; however, with dynamic learning the conditions for such a cycle to take place are severe. Then, in spite of the self-reinforcing nature of the pattern of spezialization, one of the two countries' market segments (the lower-quality one) is likely to shrink endogenously over time. Copyright Kluwer Academic Publishers 1992

Suggested Citation

  • Francesco Pigliaru, 1992. "Trade within an industry in the presence of vertical product differentiation and dynamic increasing returns," Open Economies Review, Springer, vol. 3(2), pages 165-179, June.
    • Handle: RePEc:kap:openec:v:3:y:1992:i:2:p:165-179
    DOI: 10.1007/BF01886202
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    1. Gene M. Grossman & Elhanan Helpman, 1991. "Quality Ladders in the Theory of Growth," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 58(1), pages 43-61.
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    4. Krugman, Paul, 1987. "The narrow moving band, the Dutch disease, and the competitive consequences of Mrs. Thatcher : Notes on trade in the presence of dynamic scale economies," Journal of Development Economics, Elsevier, vol. 27(1-2), pages 41-55, October.
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