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Monotone Comparative Statics for the Industry Composition

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  • Peter Arendorf Bache

    ()
    (Department of Economics and Business, Aarhus University)

  • Anders Laugesen

    ()
    (Department of Economics and Business, Aarhus University)

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    Abstract

    We let heterogeneous rms face decisions on a number of complementary activities in a monopolistically-competitive industry. The endogenous level of competition and selection regarding exit of rms introduce a wedge between monotone comparative statics (MCS) at the rm level and MCS for the industry composition. The latter phenomenon is dened as rst-order stochastic dominance shifts in the equilibrium distributions of all activities across active rms. We provide sucient conditions for MCS at both levels of analysis and show that we may have either type of MCS without the other. It is therefore possible that rm-level complementarities manifest themselves more clearly at the industry level than at the rm level. This turns out to be the case for a large number of models and shocks considered in the recent trade literature for which we provide strong, novel, and testable predictions.

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    Bibliographic Info

    Paper provided by School of Economics and Management, University of Aarhus in its series Economics Working Papers with number 2013-10.

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    Length: 39
    Date of creation: 15 May 2013
    Date of revision:
    Handle: RePEc:aah:aarhec:2013-10

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    Web page: http://www.econ.au.dk/afn/

    Related research

    Keywords: Complementary Activities; Firm Heterogeneity; Supermodularity; Monotone Comparative Statics International Trade;

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