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Vertical differentiation and trade among symmetric countries

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  • P. M. Picard

    (University of Luxembourg
    Université catholique de Louvain)

  • A. Tampieri

    (University of Luxembourg
    University of Florence)

Abstract

We study a trade model with vertical product differentiation with many goods that are heterogeneous in cost and quality and produced in two quality versions. We discuss the composition of high- and low-quality goods in the workers’ consumption baskets in countries between comparable countries. We show that a larger country population fosters its specialization in high-quality production while a higher country productivity leads to specialization in high quality production for all countries. Smaller trade costs foster specialization in high quality exports. We then discuss the effect of population heterogeneity on the consumption baskets and country specialization. Most of those results agree with existing empirical findings.

Suggested Citation

  • P. M. Picard & A. Tampieri, 2021. "Vertical differentiation and trade among symmetric countries," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 71(4), pages 1319-1355, June.
    • Handle: RePEc:spr:joecth:v:71:y:2021:i:4:d:10.1007_s00199-020-01295-9
    DOI: 10.1007/s00199-020-01295-9
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    More about this item

    Keywords

    Vertical differentiation; Horizontal differentiation; Trade; Income heterogeneity;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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