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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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Citations

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Cited by:
  1. Peter Arendorf Bache & Anders Laugesen, 2013. "Trade Liberalisation and Vertical Integration," Economics Working Papers 2013-14, School of Economics and Management, University of Aarhus.
  2. Luis Castro & Ben Li & Keith E. Maskus & Yiqing Xie, 2014. "Fixed Export Costs and Export Behavior," CESifo Working Paper Series 4697, CESifo Group Munich.
  3. Monika Mr?zov? & J. Peter Neary, 2014. "Together at Last: Trade Costs, Demand Structure, and Welfare," American Economic Review, American Economic Association, vol. 104(5), pages 298-303, May.
  4. Bernard, Andrew B. & Blanchard, Emily & van Beveren, Ilke & Vandenbussche, Hylke, 2012. "Carry-Along Trade," CEPR Discussion Papers 9067, C.E.P.R. Discussion Papers.
  5. Emily Blanchard & Gerald Willmann, 2013. "Trade, Education, and The Shrinking Middle Class," Kiel Working Papers 1831, Kiel Institute for the World Economy.
  6. Friederike Niepmann, 2013. "Banking across borders with heterogeneous banks," Staff Reports 609, Federal Reserve Bank of New York.
  7. Swati Dhingra & John Morrow, 2012. "The Impact of Integration on Productivity and Welfare Distortions Under Monopolistic Competition," FIW Working Paper series 088, FIW.
  8. Peter Arendorf Bache & Anders Laugesen, 2013. "Monotone Comparative Statics for the Industry Composition," Economics Working Papers 2013-10, School of Economics and Management, University of Aarhus.
  9. Sergey Kichko & Sergey Kokovin & Evgeny Zhelobodko, 2013. "Trade Patterns and Export Pricing Under Non-CES Preferences," FIW Working Paper series 124, FIW.
  10. Peter Neary & Monika Mrazova, 2014. "Together at Last: Trade Costs, Demand Structure, and Welfare," Economics Series Working Papers 694, University of Oxford, Department of Economics.
  11. PARENTI, Mathieu & ,, 2013. "Large and small firms in a global market: David vs. Goliath," CORE Discussion Papers 2013058, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  12. Peter Neary & Monika Mrazova, 2013. "Not so demanding: Preference structure, firm behavior, and welfare," Economics Series Working Papers 691, University of Oxford, Department of Economics.

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