Standards and Market Power: Evidence from Tunisia

Tunisia - 17 February 2018

We develop a theoretical model and derive conditions under which firms with market power try to influence the setting of quality standards and describe the political equilibrium. We show that in political equilibrium the positive association only holds for a restricted set of initial values of the firm’s market share, if the government ascribes a positive value to consumer welfare. We test our hypothesis using Tunisian data for the years 2002-2010. In our main results, we find a higher incidence of SPS measures in sectors where firms connected to former president Ben Ali have a higher share in imports. However, this association only holds for sectors with high tariffs. For low tariff sectors, we find that Ben Ali firms are associated with more TBTs. A higher concentration of market power in itself does not lead to higher standards, leading us to the conclusion that political power is essential.

Author(s): Hendrik Kruse, Inmaculada Martinez-Zarzozo, Leila Baghdadi