International Trade and Commercial Policy for Durable Goods

Many commodities traded internationally are durable in nature. A dynamic durable goods oligopoly trade model is analyzed. The analysis indicates that the pattern of intra-industry trade depends fundamentally on the quality or durability of the firms' output. Also, product durability influences the effectiveness of commercial policy. For example, as domestic product durability rises, an increase in domestic tariffs has a smaller impact on domestic production. In addition, our model uncovers a previously unrecognized avenue by which product quality standards act as a barrier to trade. Our results may help explain some of the empirical anomalies found in the literature