Scandinavian Working Papers in Economics

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

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

Dapeng Cai () and Jan Guldager Jørgensen ()
Additional contact information
Dapeng Cai: Nanzan University, Postal: Japan
Jan Guldager Jørgensen: Department of Business and Economics, Postal: University of Southern Denmark, Campusvej 55, DK-5230 Odense M, Denmark

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-codes: C71; D72; F12; F13

31 pages, January 6, 2017

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