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American Economic Review: Vol. 104 No. 2 (February 2014)

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Market Size, Competition, and the Product Mix of Exporters

Article Citation

Mayer, Thierry, Marc J. Melitz, and Gianmarco I. P. Ottaviano. 2014. "Market Size, Competition, and the Product Mix of Exporters." American Economic Review, 104(2): 495-536.

DOI: 10.1257/aer.104.2.495

Abstract

We build a theoretical model of multi-product firms that highlights how competition across market destinations affects both a firm's exported product range and product mix. We show how tougher competition in an export market induces a firm to skew its export sales toward its best performing products. We find very strong confirmation of this competitive effect for French exporters across export market destinations. Theoretically, this within-firm change in product mix driven by the trading environment has important repercussions on firm productivity. A calibrated fit to our theoretical model reveals that these productivity effects are potentially quite large.

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Authors

Mayer, Thierry (Sciences Po, Paris and CEPII, Paris)
Melitz, Marc J. (Harvard U)
Ottaviano, Gianmarco I. P. (London School of Economics and Political Science)

JEL Classifications

D21: Firm Behavior: Theory
D24: Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
F13: Trade Policy; International Trade Organizations
F14: Empirical Studies of Trade
F41: Open Economy Macroeconomics
L11: Production, Pricing, and Market Structure; Size Distribution of Firms


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