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Selection Effects with Heterogeneous Firms

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  • Monika Mrázová
  • J. Peter Neary

Abstract

We provide a general characterization of which firms will select alternative ways of serving a market. If and only if firms' maximum profits are supermodular in production and marketaccess costs, more efficient firms will select into the activity with lower market-access costs. Our result applies in a range of models and under a variety of assumptions about market structure. We show that supermodularity holds in many cases but not in all. Exceptions include FDI (both horizontal and vertical) when demands are "sub-convex" (i.e., less convex than CES), fixed costs that vary with access mode, and R&D with threshold effects.

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Bibliographic Info

Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp1174.

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Date of creation: Oct 2012
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Handle: RePEc:cep:cepdps:dp1174

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Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP

Related research

Keywords: Foreign direct investment (FDI); heterogeneous firms; proximity-concentration trade-off; R&D with threshold effects; super- and sub-convexity; supermodularity;

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References

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  1. Ronald B. Davies & Carsten Eckel, 2007. "Tax Competition for Heterogeneous Firms with Endogenous Entry," University of Oregon Economics Department Working Papers 2007-6, University of Oregon Economics Department.
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  4. Costinot, Arnaud, 2007. "Heterogeneity and Trade," University of California at San Diego, Economics Working Paper Series qt4ns3899g, Department of Economics, UC San Diego.
  5. Swati Dhingra & John Morrow, 2012. "The Impact of Integration on Productivity and Welfare Distortions Under Monopolistic Competition," FIW Working Paper series 088, FIW.
  6. Paula Bustos, 2009. "Trade Liberalization, Exports and Technology Upgrading: Evidence on the Impact of MERCOSUR on Argentinean Firms," 2009 Meeting Papers 1029, Society for Economic Dynamics.
  7. Antras, Pol & Helpman, Elhanan, 2004. "Global Sourcing," Scholarly Articles 3196327, Harvard University Department of Economics.
  8. Athey, Susan, 2002. "Monotone Comparative Statics Under Uncertainty," Scholarly Articles 3372263, Harvard University Department of Economics.
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  13. Kokovin, Sergey & Thisse, Jacques-François & Zhelobodko, Evgeny, 2010. "Monopolistic Competition: Beyond the CES," CEPR Discussion Papers 7947, C.E.P.R. Discussion Papers.
  14. Petit, Maria-Luisa & Sanna-Randaccio, Francesca, 2000. "Endogenous R&D and foreign direct investment in international oligopolies," International Journal of Industrial Organization, Elsevier, vol. 18(2), pages 339-367, February.
  15. Arnaud Costinot & Jonathan Vogel, 2010. "Matching and Inequality in the World Economy," Journal of Political Economy, University of Chicago Press, vol. 118(4), pages 747-786, 08.
  16. Hart, Oliver & Moore, John, 1990. "Property Rights and the Nature of the Firm," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1119-58, December.
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  22. repec:cdl:ucsdec:468345 is not listed on IDEAS
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Citations

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Cited by:
  1. Andrew B. BERNARD & Emily J. BLANCHARD & Ilke VAN BEVEREN & Hylke Y. VANDENBUSSCHE, 2012. "Carry-Along Trade," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2012020, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  2. Peter Arendorf Bache & Anders Laugesen, 2013. "Monotone Comparative Statics under Monopolistic Competition," Economics Working Papers 2013-10, School of Economics and Management, University of Aarhus.
  3. Swati Dhingra & John Morrow, 2012. "The Impact of Integration on Productivity and Welfare Distortions Under Monopolistic Competition," CEP Discussion Papers dp1130, Centre for Economic Performance, LSE.
  4. Emily Blanchard & Gerald Willmann, 2013. "Trade, Education, and The Shrinking Middle Class," Kiel Working Papers 1831, Kiel Institute for the World Economy.
  5. Peter Arendorf Bache & Anders Laugesen, 2013. "Trade Liberalisation and Vertical Integration," Economics Working Papers 2013-14, School of Economics and Management, University of Aarhus.
  6. Friederike Niepmann, 2013. "Banking across borders with heterogeneous banks," Staff Reports 609, Federal Reserve Bank of New York.
  7. Sergey Kichko & Sergey Kokovin & Evgeny Zhelobodko, 2013. "Trade Patterns and Export Pricing Under Non-CES Preferences," FIW Working Paper series 124, FIW.

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