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A model of international trade with vertical differentiation and Stackelberg leadership

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  • Bernard, Christophe
  • Calmette, Marie-Françoise
  • Kilkenny, Maureen
  • Loustalan, Catherine
  • Pechoux, Isabelle

Abstract

This paper uses a model of international trade under duopoly to investigate under which conditions a large country’s entrance on world markets can lead to lower and less quality diversity available to consumers rather than more. In our partial model, autarky quality is proportional to the willingness to pay for quality and home market size, and inversely proportional to the cost of quality. We formalize strategically interacting firms, and identify the context in which a low-quality producer can lead, driving high-quality producers out of the market. We discuss the feasibility of this ‘predatory strategy’ by an emerging country. It is more likely in contexts where the emerging exporter is much larger and when the difference in willingness to pay for quality between countries is not too large.

Suggested Citation

  • Bernard, Christophe & Calmette, Marie-Françoise & Kilkenny, Maureen & Loustalan, Catherine & Pechoux, Isabelle, 2016. "A model of international trade with vertical differentiation and Stackelberg leadership," TSE Working Papers 16-708, Toulouse School of Economics (TSE).
    • Handle: RePEc:tse:wpaper:31076
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    References listed on IDEAS

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    6. Motta, Massimo & Thisse, Jacques-Francois & Cabrales, Antonio, 1997. "On the Persistence of Leadership or Leapfrogging in International Trade," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 38(4), pages 809-824, November.
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    Cited by:

    1. Rabah Amir & Hend Ghazzai & Rim Lahmandi-Ayed, 2020. "On the Political Economy of Free Trade," Working Papers hal-02506064, HAL.

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    Keywords

    international trade; market size effect; Stackelberg strategy; quality competition;
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