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Trade and Variety in a Model of Endogenous Product Differentiation

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  • Oliver Lorz

    ()
    (RWTH Aachen University)

  • Matthias Wrede

    ()
    (Philipps-University Marburg)

Abstract

This paper sets up a model of endogenous product differentiation to analyze the variety effects of international trade. In our model multi-product firms decide not only about the number of varieties they supply but also about the degree of horizontal differentiation between these varieties. Firms can raise the degree of differentiation by investing variety-specific fixed costs. In this setting, we analyze how trade integration, i.e. an increase in market size, influences the number of firms in the market, the number of product varieties supplied by each firm, and the degree of differentiation.

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File URL: http://www.uni-marburg.de/fb02/makro/forschung/magkspapers/02-2009_lorz.pdf
File Function: First version, 2009
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Bibliographic Info

Paper provided by Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung) in its series MAGKS Papers on Economics with number 200902.

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Length: 13 pages
Date of creation: 2009
Date of revision:
Publication status: Forthcoming in
Handle: RePEc:mar:magkse:200902

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Keywords: Product differentiation; multi-product firms; international trade.;

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References

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  1. Eckel, Carsten, 2006. "Trade and diversity: Is there a case for ’cultural protectionism?’," Munich Reprints in Economics 20535, University of Munich, Department of Economics.
  2. Carsten Eckel & J Peter Neary, 2006. "Multi-Product Firms and Flexible Manufacturing in the Global Economy," Working Papers 200608, School Of Economics, University College Dublin.
  3. Andrew B. Bernard & Stephen J. Redding & Peter K. Schott, 2006. "Multi-Product Firms and Trade Liberalization," NBER Working Papers 12782, National Bureau of Economic Research, Inc.
  4. Paul Allanson & Catia Montagna, 1999. "Multiproduct Firms and Market Structure: An Explorative Application to the Product Life Cycle," Dundee Discussion Papers in Economics 101, Economic Studies, University of Dundee.
  5. Robert Feenstra & Hong Ma, 2007. "Optimal Choice of Product Scope for Multiproduct Firms under Monopolistic Competition," NBER Working Papers 13703, National Bureau of Economic Research, Inc.
  6. Simon P. Anderson & André de Palma, 2003. "Market Performance With Multiproduct Firms," Virginia Economics Online Papers 357, University of Virginia, Department of Economics.
  7. Brambilla, Irene, 2009. "Multinationals, technology, and the introduction of varieties of goods," Journal of International Economics, Elsevier, vol. 79(1), pages 89-101, September.
  8. Volker Nocke & Stephen Yeaple, 2006. "Globalization and Endogenous Firm Scope," PIER Working Paper Archive 06-015, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  9. Marc J. Melitz & Gianmarco I. P. Ottaviano, 2008. "Market Size, Trade, and Productivity," Review of Economic Studies, Oxford University Press, vol. 75(1), pages 295-316.
  10. John Baldwin & Wulong Gu, 2009. "The Impact of Trade on Plant Scale, Production-Run Length and Diversification," NBER Chapters, in: Producer Dynamics: New Evidence from Micro Data, pages 557-592 National Bureau of Economic Research, Inc.
  11. Carsten Eckel, 2009. "Endogenous Sunk Costs, Flexible Manufacturing and the Productivity Effects of International Trade," Scandinavian Journal of Economics, Wiley Blackwell, vol. 111(2), pages 369-386, 06.
  12. Hélène ERKEL-ROUSSE, 1997. "Endogenous Differentiation Strategies, Comparative Advantage and the Volume of Trade," Annales d'Economie et de Statistique, ENSAE, issue 47, pages 121-149.
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Cited by:
  1. Irlacher, Michael, 2014. "Multi-Product Firms, Endogenous Sunk Costs, and Gains from Trade through Intra-Firm Adjustments," Discussion Papers in Economics 21023, University of Munich, Department of Economics.
  2. Ferguson, Shon, 2010. "Endogenous Product Differentiation, Market Size and Prices," Research Papers in Economics 2010:26, Stockholm University, Department of Economics.

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