Intra-industry trade
Intra-industry trade is the trade of similar goods that are part of the same industry between two nations.
Intra-industry trade provides the consumers in each economy with a wider selection of goods. Just because two goods are of the same type, does not mean they are identical. With these differences come differing preferences. Two people might both use laptops, but where one person prefers a MacBook, the other swears by ASUS. Intra-industry trade makes it possible for consumers to have both goods available to them regardless of what country they live in.
Developed nations like the United States, Japan, China, Canada, and countries in the European Union, engage in intra-industry trade across several industries. Developed nations are more likely to engage in this type of trade because of the similarity of their production capabilities. Developed nations can produce similar goods but it would not be efficient for every nation to produce all the goods that it needs just because it can. Engaging in intra-industry trade with nations that can produce similar goods, allows each nation to specialize where they have a comparative advantage.
horizontally differentiated trade
vertically differentiated trade
Let's look into the types of intra-industry trade. The first type is horizontal trade where two similar goods are of the same standard and price range.1 Horizontal intra-industry trade allows the consumer to have a wider variety of goods to choose from. For example, the US produces many types of fruit from oranges and limes to peaches and grapes, but it imports mangoes, bananas, and avocados. Although some might prefer one fruit over the other, they are generally considered to be in the same standard category and are priced similarly depending on the season. When nations engage in horizontal intra-industry trade the quality of the goods as well as their price range is going to be very similar.
The second type of intra-industry trade is vertically differentiated trade where the goods are of the same type but are of different quality and/or price levels.1 An example of vertically differentiated intra-industry trade would be Italy producing and exporting expensive high fashion clothing while importing fast fashion that was manufactured in China. The goods that are being imported and exported belong to the same clothing industry but they are of varying quality and price.
Intra-industry trade. Study Marter 2020 https://www.studysmarter.co.uk/explanations/macroeconomics/international-economics/intra-industry-trade/