Public quality standards and the food industry’s structurein a global economy

We study the impact of public quality standardson industry structure in a context of international trade.We consider vertical differentiation in an internationaltrade model based on monopolistic competition in whichfirms differ in terms of their productivity and must incurtwo fixed export costs when exporting to any given des-tination: a generic one (i.e., setting up a distribution sys-tem) and a destination-specific one to meet the qualitystandard prevailing in the importing country. Variablecosts are also increasing in quality. The absolute mass offirms in any given country is decreasing in the domesticstandard, but the relative mass (market share) of foreignfirms is increasing in the domestic standard. Increasingpublic quality standards benefit highly productive foreignfirms which gain from the quality-induced exit of lessproductive domestic and foreign firms. The increase inindustry productivity followingstricter public standardsdoes not result from induced innovation as in the Porterhypothesis but from the exit of less productive firms.