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Trade and Variety in a Model of Endogenous Product Differentiation

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Author Info

  • Lorz Oliver

    ()
    (RWTH Aachen University)

  • Wrede Matthias

    ()
    (University of Marburg)

Abstract

This paper sets up a model of endogenous product differentiation to analyze the variety effects of international trade. In our model multi-product firms decide not only about the number of varieties they will supply but also about the degree of horizontal differentiation between these varieties. Firms can raise the degree of differentiation by investing variety-specific fixed costs. In this setting, we analyze how trade integration, i.e. an increase in market size, influences the number of firms in the market, the number of product varieties supplied by each firm, and the degree of differentiation between these varieties.

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File URL: http://www.degruyter.com/view/j/bejeap.2009.9.1/bejeap.2009.9.1.2177/bejeap.2009.9.1.2177.xml?format=INT
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Bibliographic Info

Article provided by De Gruyter in its journal The B.E. Journal of Economic Analysis & Policy.

Volume (Year): 9 (2009)
Issue (Month): 1 (November)
Pages: 1-14

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Handle: RePEc:bpj:bejeap:v:9:y:2009:i:1:n:52

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References

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  1. Carsten Eckel, 2006. "Trade and Diversity: Is There a Case for 'Cultural Protectionism?'," German Economic Review, Verein für Socialpolitik, vol. 7, pages 403-418, November.
  2. Paul Allanson & Catia Montagna, 1999. "Multiproduct Firms and Market Structure: An Explorative Application to the Product Life Cycle," Dundee Discussion Papers in Economics 101, Economic Studies, University of Dundee.
  3. Irene Brambilla, 2006. "Multinationals, Technology, and the Introduction of Varieties of Goods," NBER Working Papers 12217, National Bureau of Economic Research, Inc.
  4. John Baldwin & Wulong Gu, 2009. "The Impact of Trade on Plant Scale, Production-Run Length and Diversification," NBER Chapters, in: Producer Dynamics: New Evidence from Micro Data, pages 557-592 National Bureau of Economic Research, Inc.
  5. Andrew B. Bernard & Stephen Redding & Peter K. Schott, 2006. "Multi-Product Firms and Trade Liberalization," CEP Discussion Papers dp0769, Centre for Economic Performance, LSE.
  6. Peter Neary & Carsten Eckel, 2006. "Multi-Product Firms and Flexible Manufacturing in the Global Economy," Economics Series Working Papers 292, University of Oxford, Department of Economics.
  7. Carsten Eckel, 2009. "Endogenous Sunk Costs, Flexible Manufacturing and the Productivity Effects of International Trade," Scandinavian Journal of Economics, Wiley Blackwell, vol. 111(2), pages 369-386, 06.
  8. Ottaviano, Gianmarco & Melitz, Marc, 2008. "Market Size, Trade, and Productivity," Scholarly Articles 3229096, Harvard University Department of Economics.
  9. Robert Feenstra & Hong Ma, 2007. "Optimal Choice of Product Scope for Multiproduct Firms under Monopolistic Competition," NBER Working Papers 13703, National Bureau of Economic Research, Inc.
  10. Volker Nocke & Stephen Yeaple, 2006. "Globalization and Endogenous Firm Scope," NBER Working Papers 12322, National Bureau of Economic Research, Inc.
  11. Simon P. Anderson & André de Palma, 2003. "Market Performance With Multiproduct Firms," Virginia Economics Online Papers 357, University of Virginia, Department of Economics.
  12. Hélène ERKEL-ROUSSE, 1997. "Endogenous Differentiation Strategies, Comparative Advantage and the Volume of Trade," Annales d'Economie et de Statistique, ENSAE, issue 47, pages 121-149.
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Cited by:
  1. Ferguson, Shon, 2011. "Endogenous Product Differentiation, Market Size and Prices," Working Paper Series 878, Research Institute of Industrial Economics.

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