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A note on the isomorphism of heterogeneous firms models

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  • Flach, Lisandra

Abstract

Since firm-level data has become available, many papers have studied the relative importance of production efficiency and product quality for firms’ export success. Quality sorting models are considered to a large extent as a quality interpretation of the Melitz (2003) model: While firm-level prices decrease monotonically in production efficiency, firm-level prices increase monotonically with quality. Using firm-level information on technology and quality upgrading investments, this paper discusses the isomorphism of heterogeneous firms models. The paper shows that, while the decision to increase product quality or markups within the firm may be firm and market specific, increases in production efficiency are only firm-specific. Hence, the general equilibrium solution of these models may be non-isomorphic.

Suggested Citation

  • Flach, Lisandra, 2017. "A note on the isomorphism of heterogeneous firms models," Economics Letters, Elsevier, vol. 155(C), pages 24-27.
    • Handle: RePEc:eee:ecolet:v:155:y:2017:i:c:p:24-27
    DOI: 10.1016/j.econlet.2017.03.004
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    References listed on IDEAS

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    1. Flach, Lisandra & Unger, Florian, 2022. "Quality and gravity in international trade," Journal of International Economics, Elsevier, vol. 137(C).
    2. Eric A. Verhoogen, 2008. "Trade, Quality Upgrading, and Wage Inequality in the Mexican Manufacturing Sector," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 123(2), pages 489-530.
    3. Richard Baldwin & James Harrigan, 2011. "Zeros, Quality, and Space: Trade Theory and Trade Evidence," American Economic Journal: Microeconomics, American Economic Association, vol. 3(2), pages 60-88, May.
    4. Marc J. Melitz & Giancarlo I. P. Ottaviano, 2021. "Market Size, Trade, and Productivity," World Scientific Book Chapters, in: Firms and Workers in a Globalized World Larger Markets, Tougher Competition, chapter 4, pages 87-108, World Scientific Publishing Co. Pte. Ltd..
    5. Hallak, Juan Carlos & Sivadasan, Jagadeesh, 2013. "Product and process productivity: Implications for quality choice and conditional exporter premia," Journal of International Economics, Elsevier, vol. 91(1), pages 53-67.
    6. Eckel, Carsten & Iacovone, Leonardo & Javorcik, Beata & Neary, J. Peter, 2015. "Multi-product firms at home and away: Cost- versus quality-based competence," Journal of International Economics, Elsevier, vol. 95(2), pages 216-232.
    7. Paula Bustos, 2011. "Trade Liberalization, Exports, and Technology Upgrading: Evidence on the Impact of MERCOSUR on Argentinian Firms," American Economic Review, American Economic Association, vol. 101(1), pages 304-340, February.
    8. Irene Brambilla & Daniel Lederman & Guido Porto, 2012. "Exports, Export Destinations, and Skills," American Economic Review, American Economic Association, vol. 102(7), pages 3406-3438, December.
    9. Antoniades, Alexis, 2015. "Heterogeneous Firms, Quality, and Trade," Journal of International Economics, Elsevier, vol. 95(2), pages 263-273.
    10. Matthieu Crozet & Keith Head & Thierry Mayer, 2012. "Quality Sorting and Trade: Firm-level Evidence for French Wine," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 79(2), pages 609-644.
    11. Flach, Lisandra, 2016. "Quality upgrading and price heterogeneity: Evidence from Brazilian exporters," Journal of International Economics, Elsevier, vol. 102(C), pages 282-290.
    12. Flach, Lisandra, 2016. "Quality upgrading and price heterogeneity: Evidence from Brazilian exporters," Munich Reprints in Economics 43480, University of Munich, Department of Economics.
    13. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
    14. Marc J. Melitz & Gianmarco I. P. Ottaviano, 2008. "Market Size, Trade, and Productivity (DOI:10.111/j.1467-937x.2007.00463.x)," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 75(3), pages 985-985.
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    Cited by:

    1. Ina C. Jäkel & Allan Sørensen, 2020. "Quality‐cum‐price sorting," The World Economy, Wiley Blackwell, vol. 43(5), pages 1346-1370, May.

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    More about this item

    Keywords

    Isomorphism; Heterogeneous firms; Technology upgrading; Quality upgrading;
    All these keywords.

    JEL classification:

    • F1 - International Economics - - Trade
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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