Trading Away Wide Brands for Cheap Brands
- (pp. 2554-84)
AbstractFirms 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.
Citation2013. "Trading Away Wide Brands for Cheap Brands." American Economic Review, 103(6): 2554-84. DOI: 10.1257/aer.103.6.2554
- D24 Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
- F13 Trade Policy; International Trade Organizations
- O31 Innovation and Invention: Processes and Incentives