Export restraints and horizontal product differentiation

We consider the effects of export restraints on price competition in the Hotelling model of hor- izontal product differentiation. We characterise the Nash equilibrium for all possible values of the quota and compare our results with those of Krishna [89]. We show that a foreign pro- ducer would choose a Voluntary Export Restraint in the vicinity of the Free Trade Equilibrium. In order to maximise domestic welfare, a government would not necessarily choose complete protectionism nor free trade.