Journal of International Economics 19 (1985) 341-354. North-Holland IMPORT CONTROLS UNDER IMPERFECT INFORMATION Shabtai DONNENFELD University of Haifa and New York University, New York, N Y IO006, USA Shlomo WEBER University of Half a, Haifa 31999, Israel Uri BEN-ZION* Technion, Israel Institute of Technology, Haifa 32000, Israel Received July 1984, revised version received February 1985 This paper examines the effects of governmentally imposed quality controls upon an industry which consists of a domestic monopolist which is facing competition from a large number of foreign finns. Domestic consumers know the quality of the home good, while their information about the quality of imports is imperfect. Although minimum quality standards are directly imposed on imports, they indirectly affect the behavior of the domestic monopolist. The domestic firm raises quality but its price response is ambiguous. Furthermore, its market share and profitability decline. Import controls harm some consumers and benefit others. We state conditions which lead to a lower national welfare. 1. Introduction Developed countries often impose quality standards on imports. One can simplify the various opinions with regard to the purpose and the effects of import controls by putting forward two views. According to one view standard controls are imposed in order to protect domestic consumers from imports of low quality. Second, import controls are viewed as a means to protect the import competing industry, and thus erect barriers to trade. A good summary of this line of argument can be found in Baldwin (1970) and Stern (1973). More recently, Mayer (1982) formally examined the protective effects of import standards in the context of a perfectly competitive domestic industry which produces a differentiated product. By assuming perfect information, Mayer presented a method which enables the calculation of the tariff equivalent of import standards. In this paper we re-examine the issue of import standards in the more *We are thankful to Wolfgang Mayer and John Pomery for their comments on an earlier version of this paper. The specific comments of a referee and some broader issues raised by a reader helped to clarify and improve the quality of the paper. 0022-1996/85/$3.30 © 1985, Elsevier Science Publishers B.V. (North-Holland)