Consumption home bias and ethnocentrism: an international duopoly

We define a model with two countries and two vertically differentiated goods, a high and a low-quality variant, and heterogenous consumers with respect to their willingness to pay for quality. Consumers in one country are ethnocentric in consumption. They thrive additional satisfaction when consuming a domestic good rather than a foreign one since only the former can satisfy their sense of place. We investigate the role of trade costs and ethnocentric attitude in shaping the equilibrium configuration of the international duopoly.