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Consumer-benefiting transport cost: The role of product innovation in a vertical structure

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  • Kazuhiro Takauchi

    (Faculty of Business and Commerce,Kansai University)

  • Tomomichi Mizuno

    (Graduate School of Economics, Kobe University)

Abstract

We study the effects of a reduction of transport cost on the firm's activity of product innovation and on consumer welfare. Firms engage in product R&D that increases the degree of product differentiation, purchase intermediate inputs from an exclusive supplier, and export their products to the foreign market paying a per-unit transport cost. Trade theory commonly asserts that zero transport cost maximizes consumer surplus. Contrary to this standard belief, we show that a positive transport cost can maximize consumer surplus. We also consider more general effects of R&D and show that our main results hold even in such case.

Suggested Citation

  • Kazuhiro Takauchi & Tomomichi Mizuno, 2020. "Consumer-benefiting transport cost: The role of product innovation in a vertical structure," Discussion Papers 2017, Graduate School of Economics, Kobe University.
    • Handle: RePEc:koe:wpaper:2017
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    References listed on IDEAS

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    Cited by:

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    More about this item

    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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