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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. Luis Castro & Ben Li & Keith Maskus & Yiqing Xie, 2014. "Fixed Export Costs and Export Behavior," Boston College Working Papers in Economics, Boston College Department of Economics 855, Boston College Department of Economics.
  2. Peter Arendorf Bache & Anders Laugesen, 2013. "Monotone Comparative Statics for the Industry Composition," Economics Working Papers, School of Economics and Management, University of Aarhus 2013-10, School of Economics and Management, University of Aarhus.
  3. Emily Blanchard & Gerald Willmann, 2013. "Trade, Education, and The Shrinking Middle Class," Kiel Working Papers 1831, Kiel Institute for the World Economy.
  4. Sergey Kichko & Sergey Kokovin & Evgeny Zhelobodko, 2013. "Trade Patterns and Export Pricing Under Non-CES Preferences," FIW Working Paper series, FIW 124, FIW.
  5. Monika Mr?zov? & J. Peter Neary, 2014. "Together at Last: Trade Costs, Demand Structure, and Welfare," American Economic Review, American Economic Association, American Economic Association, vol. 104(5), pages 298-303, May.
  6. 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), Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES) 2012020, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  7. Beata Javorcik & Steven Poelhekke, 2014. "Former foreign affiliates: Cast out and outperformed?," DNB Working Papers, Netherlands Central Bank, Research Department 435, Netherlands Central Bank, Research Department.
  8. Swati Dhingra & John Morrow, 2012. "The Impact of Integration on Productivity and Welfare Distortions Under Monopolistic Competition," FIW Working Paper series, FIW 088, FIW.
  9. 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.
  10. Beata Javorcik & Steven Poelhekke, 2014. "Former Foreign Affiliates: Cast Out and Outperformed?," Tinbergen Institute Discussion Papers 14-094/VIII, Tinbergen Institute.
  11. PARENTI, Mathieu & ,, 2013. "Large and small firms in a global market: David vs. Goliath," CORE Discussion Papers, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) 2013058, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  12. Peter Arendorf Bache & Anders Laugesen, 2013. "Trade Liberalisation and Vertical Integration," Economics Working Papers, School of Economics and Management, University of Aarhus 2013-14, School of Economics and Management, University of Aarhus.
  13. Friederike Niepmann, 2013. "Banking across borders with heterogeneous banks," Staff Reports, Federal Reserve Bank of New York 609, Federal Reserve Bank of New York.

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