Liberalization, entry and product quality in transition economies


We model the effect of liberalization on product quality and industrial activity in transition economies. As barriers to entry are reduced, entry costs fall. This leads to an increase in the proportion of low quality producers in the market. The decrease in the expected quality can have adverse effects on consumer demand for the domestic product. The analysis suggests a demand side explanation of the observed restructuring and decline in output in sectors exposed to Western competition during transition. © 2002 Elsevier Science B.V. All rights reserved.

Publication Title

Economic Systems