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Department of Business and Economics, University of Southern Denmark Discussion Papers of Business and Economics
Department of Business and Economics, University of Southern Denmark

No 1/2017:
Mutual Recognition for Sale: International Bargaining over Product Standards

Dapeng Cai () and Jan Guldager Jørgensen ()

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; (follow links to similar papers)

JEL-Codes: C71; D72; F12; F13; (follow links to similar papers)

31 pages, January 6, 2017

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