I MPORT RESTRAINTS AND HORIZONTAL PRODUCT D IFFERENTIATION Nicolas Boccard * & Xavier Wauthy ** February 2000 ABSTRACT We consider the impact of an import quota under price competition in the Hotelling model of horizontal product differentiation. Two issues are contemplated. First, we show that the main qualitative implication of the quota in a pricing game is to generate equilibrium outcomes quite similar to those prevailing under Cournot competition. In particular the optimal quota from the domestic point of view is invariant to the mode of competition. Second, we show how the presence of the quota affects the choice of products' attributes. When transportation costs are quadratic, the maximum differentiation principle does not hold for most values of the quota: by relaxing price competition, the quota reverses firms' incentives with respect to the choice of attributes. Keywords : Hotelling, Optimal Quota, Price Competition JEL Classification : D43, F13, L13 * CORE Université Catholique de Louvain & CREPP Université de Liège, boccard@core.ucl.ac.be ** CEREC Facultés Universitaires Saint Louis, Bruxelles & CORE Université Catholique de Louvain The authors thank Nicolas Schmitt and Philippe Monfort for useful comments.