Mutual Recognition for Sale: International Bargaining Over Product Standards

Discussion Papers on Business and Economics, University of Southern Denmark, 1/2017

32 Pages Posted: 9 Jan 2017

See all articles by Dapeng Cai

Dapeng Cai

Nagoya University

Jan Guldager Jørgensen

University of Southern Denmark - Department of Economics

Date Written: January 6, 2017

Abstract

We model a two-country bargaining process over the coordination of a horizontally differentiated product standard. We show that the necessary conditions for bargaining to take place are (i) firm heterogeneity and (ii) sufficiently high complying costs. When firms compete à la Cournot in the Home market and when bargaining takes place, our results suggest that mutual recognition of standards, and not the harmonization of standards, inevitably emerges as Home’s optimal choice. We also demonstrate that mutual recognition can maximize global welfare. Our results largely hold when firms compete à la Bertrand.

Keywords: Product standards, mutual recognition, harmonization, international bargaining, lobbying, horizontal differentiation

JEL Classification: C71, F12, F13, D72

Suggested Citation

Cai, Dapeng and Jørgensen, Jan Guldager, Mutual Recognition for Sale: International Bargaining Over Product Standards (January 6, 2017). Discussion Papers on Business and Economics, University of Southern Denmark, 1/2017, Available at SSRN: https://ssrn.com/abstract=2894786 or http://dx.doi.org/10.2139/ssrn.2894786

Dapeng Cai

Nagoya University ( email )

Furo-cho, Chikusa-ku
Nagoya-City, 4648601
Japan

Jan Guldager Jørgensen (Contact Author)

University of Southern Denmark - Department of Economics ( email )

Faculty of Social Sciences
Campusvej 55
DK-5230 Odense M
Denmark
+45 6550 3270 (Phone)
+45 6613 0507 (Fax)

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