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American Economic Review: Vol. 103 No. 6 (October 2013)

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Trading Away Wide Brands for Cheap Brands

Article Citation

Dhingra, Swati. 2013. "Trading Away Wide Brands for Cheap Brands." American Economic Review, 103(6): 2554-84.

DOI: 10.1257/aer.103.6.2554

Abstract

Firms face competing needs to expand product variety and reduce production costs. Access to larger markets enables innovation to reduce costs. Although firm scale increases, foreign competition reduces markups. Firms' ability to recapture lost markups depends on the interplay between within-firm competition and across-firm competition. Narrowing product variety eases within-firm competition but lowers market share. I provide a theory detailing the impact of trade policy on product and process innovation. Unbundling innovation provides new insights into welfare gains and innovation policy. Product innovation increases welfare beyond standard gains from trade. The relative returns to innovation policy change with trade liberalization.

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Authors

Dhingra, Swati (London School of Economics and Political Science)

JEL Classifications

D24: Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
F13: Trade Policy; International Trade Organizations
O31: Innovation and Invention: Processes and Incentives


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