High-quality bias in vertically differentiated oligopolies - a note on skills, trade, and welfare

In a vertically differentiated Cournot oligopoly where the high-quality variant of the good requires the use of high-quality labor, firms may either all supply the sane quality or differentiate their product. In differentiated configurations the number of firms choosing to supply the high-quality variant is generally above the: optimum. The opening of trade between symmetric countries entails a pro-competitive effect that raises welfare through a reduction in average quality. This result contrasts with previous findings concerning the opening of trade in vertically differentiated oligopolistic industries (Gabszewicz, Shaked, Sutton, and Thisse, International Economic Review 22 [1981]; Shaked and Sutton, in Kierzkowski, ed., Monopolistic Competition and International Trade, Oxford 1984).