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Journal of Economic Integration 2006 June;21(2) :273-293.
Effects of Liberalization on Domestic Product Quality

Tarun Kabiraj Soma Roy 

Indian Statistical Institute, India
Dum Dum Motijheel College,India
Copyright ©2006 Journal of Economic Integration

In a model of vertical product differentiation we study the impact of liberalization on the choice of the product quality of a local monopolist. We show that under liberalization as one foreign firm enters with a superior quality, the local firm will reduce its quality level unless the foreign firm’s product quality is sufficiently higher. As the efficiency of the local firm goes up, its quality choice responds more under liberalization than under protection. However, its market size in the protective regime is independent of its efficiency level.

JEL Classifications: L11, O12

Keywords: Product Quality | Competition | Efficiency | Protection | Liberalization
1. Bagwell, K. and R. Staiger (1989), “The role of export subsidies when product quality is unknown”, Journal of International Economics 27, 69-89.
2. Balassa, B. (1977), “A stages approach to comparative advantage”, World Bank Working Paper, No. 256.
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