Department of Economics and Business Economics

Harmonization versus Mutual Recognition: Some pitfalls for the coordination of product standards under imperfect competition

Research output: Working paperResearch

The present paper examines trade liberalization driven by the coordination
of product standards. For oligopolistic firms situated in separate markets that are initially sheltered by national standards, mutual recognition of standards implies entry and reduced profits at home paired with the opportunity to start export sales. In contrast, harmonization, in particular the prospect that one’s own national (but not the foreign) standard becomes the only globally accepted
standard, opens the foreign market without balancing entry at home. We study these scenarios in a reduced form lobby game with two countries and three firms, where firms first lobby for the policy coordination regime (harmonization versus mutual recognition), and subsequently, in case of harmonization, the global standard is auctioned among the firms. We discuss welfare effects and conclude with policy implications. In particular, harmonized standards may
fail to harvest the full pro-competitive effects from trade liberalization compared to mutual recognition; moreover, the issue is most pronounced in markets featuring price competition.
Original languageEnglish
Place of publicationUniversity of Southern Denmark
PublisherDepartment of Business and Economics, Faculty of Business and Social Sciences, University of Southern Denmark
Number of pages19
Publication statusPublished - 2014

    Research areas

  • Standard regimes, Harmonization, Technical trade barrieres, NTBs, Cournot competition, Bertrand competition

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