National-security export quality restrictions in segmented and non-segmented markets

We examine the effect of international price arbitrage on the willingness to set unilateral export controls. The restriction on the quality of exports of security sensitive products limits the outside option of domestic customers: if the product available on the international market is of low quality the firm can charge a high price to domestic customers for its latest technology. This effect leads the government to be less willing to introduce export controls on security sensitive products.