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Trade, economic geography and the choice of product quality

Author

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  • PICARD, Pierre M.

    (CREA, University of Luxembourg; Université catholique de Louvain, CORE, Belgium)

Abstract
The present paper studies the effect of the choice of product quality on trade and location of firms. We discuss a model where consumers have preferences for the quality of a set of differentiated varieties. Firms do not only develop and sell manufacturing varieties in a monopolistic competitive market but also determine the quality level of their varieties by investing in research and development. We explore the price and quality equilibrium properties when firms are immobile. We then consider a footloose capital model where capital is allocated to the manufacturing firms in the region offering the highest return. We show that the larger region produces varieties of higher quality and that the quality gap increases with larger asymmetries in region sizes and with larger trade costs. Finally, the home market effect is mitigated when firms choose their product quality.

Suggested Citation

  • PICARD, Pierre M., 2013. "Trade, economic geography and the choice of product quality," LIDAM Discussion Papers CORE 2013039, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvco:2013039
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    Cited by:

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    2. Nobuyuki Takashima & Yasunori Ouchida, 2020. "Quality‐improving R&D and merger policy in a differentiated duopoly: Cournot and Bertrand equilibria," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 41(7), pages 1338-1348, October.
    3. PAPAVASILIOU, Anthony & HE, Yi & SVOBODA, Alva, 2013. "Self-commitment of combined cycle units under electricity price uncertainty," LIDAM Discussion Papers CORE 2013051, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    4. Sergey Kichko & Pierre M. Picard, 2018. "Heterogeneity in Conformism, Firm Selection, and Home Bias," DEM Discussion Paper Series 18-09, Department of Economics at the University of Luxembourg.
    5. Nowak, Verena, 2016. "Integration or Outsourcing: Combining Ex Ante Distortions and Ex Post Inefficiencies," VfS Annual Conference 2016 (Augsburg): Demographic Change 145897, Verein für Socialpolitik / German Economic Association.
    6. SAITO Hisamitsu & MATSUURA Toshiyuki, 2016. "Agglomeration Economies, Productivity, and Quality Upgrading," Discussion papers 16085, Research Institute of Economy, Trade and Industry (RIETI).
    7. José M. Gaspar, 2018. "A prospective review on New Economic Geography," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 61(2), pages 237-272, September.
    8. Saito, Hisamitsu, 2021. "Foreign direct investment and quality upgrading in Indonesian manufacturing," MPRA Paper 106770, University Library of Munich, Germany.
    9. Sarah El Joueidi, 2017. "Self-Regulation and Stock Listing Decision of Banks," DEM Discussion Paper Series 17-05, Department of Economics at the University of Luxembourg.

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    More about this item

    Keywords

    monopolistic competition; endogenous quality; economic geography;
    All these keywords.

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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