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Verti-zontal Differentiation in Monopolistic Competition

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  • Francesco Di Comite

    ()
    (Université Catholique de Louvain and European Commission)

  • Jacques-François Thisse

    (Université Catholique de Louvain)

  • Hylke Vandenbussche

    (National Bank of Belgium)

Abstract

The recent availability of trade data at a firm-product-country level calls for a new generation of models able to exploit the large variability detected across observations. By developing a model of monopolistic competition in which varieties enter preferences non-symmetrically, we show how consumer taste heterogeneity interacts with quality and cost heterogeneity to generate a new set of predictions. Applying our model to a unique micro-level dataset on Belgian exporters with product and destination market information, we find that heterogeneity in consumer tastes is the missing ingredient of existing monopolistic competition models necessary to account for observed data patterns.

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Bibliographic Info

Paper provided by Centro Studi Luca d\'Agliano, University of Milano in its series Development Working Papers with number 322.

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Length: 50
Date of creation: 17 Oct 2011
Date of revision: 17 Oct 2011
Handle: RePEc:csl:devewp:322

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Keywords: Heterogeneous firms; Product Differentiation; Monopolistic Competition; Nonsymmetric varieties;

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References

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Citations

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Cited by:
  1. Di Comite, Francesco & Rovegno, Laura & Vandenbussche, Hylke & Viegelahn, Christian, 2011. "Moving up the Quality ladder? EU-China Trade Dynamics in Clothing," CEPR Discussion Papers 8725, C.E.P.R. Discussion Papers.
  2. Massimiliano Bratti & Giulia Felice, 2012. "Are Exporters More Likely to Introduce Product Innovations?," The World Economy, Wiley Blackwell, vol. 35(11), pages 1559-1598, November.
  3. Francesco Di Comite, 2012. "Measuring quality and non-cost competitiveness at a country-product level," European Economy - Economic Papers 467, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  4. Jože Damijan & Jozef Konings & Sašo Polanec, 2013. "Pass-on trade: why do firms simultaneously engage in two-way trade in the same varieties?," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 149(1), pages 85-111, March.
  5. Pierre M. Picard & Toshihiro Okubo, 2011. "Firms Location under Demand Heterogeneity," CREA Discussion Paper Series 11-07, Center for Research in Economic Analysis, University of Luxembourg.

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