Abstract
In a vertically differentiated Cournot oligopoly where the high-quality variant of the good requires the use of high-quality labor, firms may either all supply the same quality or differentiate their product. In differentiated configurations the number of firms choosing to supply the high-quality variant is generally above the optimum. The opening of trade between symmetric countries entails a pro-competitive effect that raises welfare through a reduction in average quality. This result contrasts with previous findings concerning the opening of trade in vertically differentiated oligopolistic industries (Gabszewicz, Shaked, Sutton, and Thisse,International Economic Review 22 [1981]; Shaked and Sutton, in Kierzkowski, ed.,Monopolistic Competition and International Trade, Oxford 1984).
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Turrini, A. High-quality bias in vertically differentiated oligopolies—a note on skills, trade, and welfare. Zeitschr. f. Nationalökonomie 71, 133–147 (2000). https://doi.org/10.1007/BF01227448
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DOI: https://doi.org/10.1007/BF01227448