PRICE COMPETITION VS. QUALITY COMPETITION: THE ROLE OF ONE-WAY TRADE Š. BOJNEC – I. FERTÕ (Received:1 May 2007; revision received: 8 August 2007; accepted: 24 January 2008) This paper investigates trade balances and unit values focusing on Hungarian–Slovenian bilateral agri-food trade flows to distinguish types of one-way and two-way trade flows, categories of price competition and categories of quality competition. We combine Gehlhar – Pick’s (GP) (2002) pro- cedure of four trade categories with knowledge from literature on intra-industry trade (IIT) to disen- tangle one-way trade, which can be significant when trade between two countries is imbalanced, from two-way matched trade flows with unit values as proxies for price. By comparing the empirical results obtained using the additional categories of one-way trade and disentangled IIT types in two-way matched trade by product was found that GP’s two price and two quality competition cate- gories and IIT types complement each other. The decomposition of GP non-price competition cate- gories on quality competition and one-way trade illustrates that one-way trade is the most significant component of agri-food trade between Hungary and Slovenia, a finding relevant for agri-food trade of several small countries. One-way trade cannot be associated by the simultaneous export and im- port unit values by the product, but by some other factors of trade specialisation and comparative trade advantages of relevance for public policy makers and private business. Keywords: one-way trade, price competition, quality competition JEL classification index: F130, F140, F150, Q130, Q170 1. INTRODUCTION Different theoretical and methodological approaches are available to investigate trade types, which all classify trade types into various components. The combina- 0001-6373/$20.00 © 2008 Akadémiai Kiadó, Budapest Acta Oeconomica, Vol. 58 (1) pp. 61–89 (2008) DOI: 10.1556/AOecon.58.2008.1.3 Corresponding author: I. Fertõ, Institute of Economics, Hungarian Academy of Sciences, Budaörsi u. 45, H-1112 Budapest, Hungary. E-mail: ferto@econ.core.hu