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Multi-Product Firms and Product Quality

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  • Kalina Manova
  • Zhiwei Zhang
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    Abstract

    This paper proposes that quality differentiation is an important feature of the operations of multi-product firms. We develop a model in which manufacturers vary product quality across their product range by using inputs of different quality levels. Firms’ core competency is in varieties of superior quality that bring higher sales despite being more expensive. Using detailed customs data for China, we establish four new stylized facts consistent with this model. First, firms earn more bilateral and global revenues from their more expensive products. Second, exporters focus on their top expensive goods, drop cheaper articles and earn lower revenues in markets where they sell fewer varieties. Third, companies' sales are more skewed towards their core expensive goods in destinations where they offer less items. Finally, export prices are positively correlated with input prices across products within a firm. Our results have important implications for the aggregate and distributional effects of trade reforms and exchange rate movements.

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    Bibliographic Info

    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18637.

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    Date of creation: Dec 2012
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    Handle: RePEc:nbr:nberwo:18637

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    Cited by:
    1. Yue Ma & Heiwai Tang & Yifan Zhang, 2012. "Factor Intensity, Product Switching, and Productivity: Evidence from Chinese Exporters," Working Papers, Hong Kong Institute for Monetary Research 252012, Hong Kong Institute for Monetary Research.
    2. Angelo Secchi & Federico Tamagni & Chiara Tomasi, 2013. "Export price adjustments under financial constraints," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00848159, HAL.
    3. Chen, Natalie & Juvenal, Luciana, 2013. "Quality, Trade, and Exchange Rate Pass-Through," CEPR Discussion Papers, C.E.P.R. Discussion Papers 9744, C.E.P.R. Discussion Papers.

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