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EXPORT SUBSIDIES, COST DIFFERENTIAL AND PRODUCT QUALITY |
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| Authors: | Hong Hwang Chao-Cheng Mai and Hiroshi Ohta |
| Institution: | National Taiwan University and Academia Sinica; Tamkang University and Academia Sinica; Aoyama Gakuin University |
| Abstract: | This paper presents a vertical product differentiation model to examine the relationship between optimal trade policies and product qualities for different export countries under Cournot quantity competition as well as Bertrand price competition. We can also use this quality model to explain why Japan as a high production-cost country may have incentives to offer high subsidies. This is a case that cannot be explained by the strategic trade theory models à la Brander and Spencer (1985) or Eaton and Grossman (1986). |
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