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Verti-zontal differentiation in monopolistic competition

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Author Info

  • Francesco Di Comite

    ()
    (Department of Economics (IRES), Université Catholique de Louvain
    European Commission, Directorate-General Economic and Financial Affairs)

  • Jacques-François Thisse

    ()
    (CORE, Université Catholique de Louvain)

  • Hylke Vandenbussche

    ()
    (National Bank of Belgium, Research Department
    CORE, Université Catholique de Louvain
    Department of Economics (IRES), Université Catholique de Louvain)

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 National Bank of Belgium in its series Working Paper Research with number 216.

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Length: 59 pages
Date of creation: Oct 2011
Date of revision:
Handle: RePEc:nbb:reswpp:201110-216

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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. 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.
  3. Massimiliano Bratti & Giulia Felice, 2011. "Are Exporters More Likely to Introduce Product Innovations?," Development Working Papers 306, Centro Studi Luca d\'Agliano, University of Milano, revised 09 May 2011.
  4. Picard, Pierre M. & Okubo, Toshihiro, 2012. "Firms' locations under demand heterogeneity," Regional Science and Urban Economics, Elsevier, vol. 42(6), pages 961-974.
  5. 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.

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