This paper examines the strategic trade policy incentives for investment policies towards quality improvements in a vertically differentiated exporting industry. Firms first compete in qualities and then export to a third country market based on Bertrand or Cournot competition. Optimal policies...

A model is constructed in which multinational firms may arise endogenously. Multinationals exist in equilibrium when transport and tariff costs are high, incomes are high, and firm-level scale economies are important relative to plant-level scale economies. Less obvious, multinationals are more...

We study international trade and macroeconomic dynamics triggered by the imposition of sanctions. We begin with a tractable two-country model where Home and Foreign countries have comparative advantages in production of differentiated consumption goods and a commodity (e.g., gas), respectively....

This paper investigates the effect of endogenous horizontal product differentiation on trade patterns and the gains from trade under Bertrand and Cournot oligopoly. Firms differentiate their products to mitigate competition, but only if the investment required is not too high. Investment in...

This paper provides a new and simple model of endogenous horizontal product differentiation based on a standard demand structure derived from quadratic utility. One objective of the paper is to explain the "empirical Bertrand paradox" - the failure to observe homogeneous product Bertrand...

Models with constant-elasticity of substitution (CES) preferences are commonly employed in the international trade literature because they provide a tractable way to handle product differentiation in general equilibrium. However this tractability comes at the cost of generating a set of...

This paper presents a model of international trade that features heterogeneous firms, relative endowment differences across countries, and consumer taste for variety. The paper demonstrates that firm reactions to trade liberalization generate endogenous Ricardian productivity responses at the...

Since the seminal work of Krugman (1979), product variety has played a central role in models of trade and growth. In spite of the general use of love-of-variety models, there has been no systematic study of how the import of new varieties has contributed to national welfare gains in the United...