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Selection Effects with Heterogeneous Firms

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  • Peter Neary
  • Monika Mrazova

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 market-access 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 University of Oxford, Department of Economics in its series Economics Series Working Papers with number 588.

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Date of creation: 01 Dec 2011
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Handle: RePEc:oxf:wpaper:588

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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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  1. Hart, Oliver D. & Moore, John, 1990. "Property Rights and the Nature of the Firm," Scholarly Articles 3448675, Harvard University Department of Economics.
  2. Susan Athey, 2002. "Monotone Comparative Statics Under Uncertainty," The Quarterly Journal of Economics, MIT Press, vol. 117(1), pages 187-223, February.
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  6. Ronald B. Davies & Carsten Eckel, 2010. "Tax Competition for Heterogeneous Firms with Endogenous Entry," American Economic Journal: Economic Policy, American Economic Association, vol. 2(1), pages 77-102, February.
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  17. Lynda A. Porter, 2012. "Asymmetric Oligopoly and Foreign Direct Investment: Implications for Host-Country Tax-Setting," International Economic Journal, Taylor & Francis Journals, vol. 26(2), pages 229-246, June.
  18. Jonathan Vogel & Arnaud Costinot, 2008. "Matching and Inequality in the World Economy," 2008 Meeting Papers 879, Society for Economic Dynamics.
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Citations

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Cited by:
  1. Peter Arendorf Bache & Anders Laugesen, 2013. "Monotone Comparative Statics for the Industry Composition," Economics Working Papers 2013-10, School of Economics and Management, University of Aarhus.
  2. Swati Dhingra & John Morrow, 2012. "The Impact of Integration on Productivity and Welfare Distortions Under Monopolistic Competition," CEP Discussion Papers dp1130, Centre for Economic Performance, LSE.
  3. Sergey Kichko & Sergey Kokovin & Evgeny Zhelobodko, 2013. "Trade Patterns and Export Pricing Under Non-CES Preferences," FIW Working Paper series 124, FIW.
  4. Friederike Niepmann, 2013. "Banking across borders with heterogeneous banks," Staff Reports 609, Federal Reserve Bank of New York.
  5. Emily Blanchard & Gerald Willmann, 2013. "Trade, Education, and the Shrinking Middle Class," CESifo Working Paper Series 4141, CESifo Group Munich.
  6. Bernard, Andrew B. & Blanchard, Emily & van Beveren, Ilke & Vandenbussche, Hylke, 2012. "Carry-Along Trade," CEPR Discussion Papers 9067, C.E.P.R. Discussion Papers.
  7. PARENTI, Mathieu & ,, 2013. "Large and small firms in a global market: David vs. Goliath," CORE Discussion Papers 2013058, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  8. Peter Arendorf Bache & Anders Laugesen, 2013. "Trade Liberalisation and Vertical Integration," Economics Working Papers 2013-14, School of Economics and Management, University of Aarhus.
  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. Luis Castro & Ben Li & Keith E. Maskus & Yiqing Xie, 2014. "Fixed Export Costs and Export Behavior," CESifo Working Paper Series 4697, CESifo Group Munich.
  11. Monika Mr?zov? & J. Peter Neary, 2014. "Together at Last: Trade Costs, Demand Structure, and Welfare," American Economic Review, American Economic Association, vol. 104(5), pages 298-303, May.
  12. Peter Neary & Monika Mrazova, 2014. "Together at Last: Trade Costs, Demand Structure, and Welfare," Economics Series Working Papers 694, University of Oxford, Department of Economics.

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