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Heterogeneous Firms, Quality, and Trade

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  • Antoniades, Alexis

Abstract

We present a simple and tractable trade model of heterogeneous firms, endogenous quality choice, and endogenous markups. A key feature of the model is that competition not only lowers the cost cut-off between the firms that produce and those that exit, but it also raises the scope for quality differentiation. With both these channels present, the most productive firms respond to competition by raising quality, prices, and markups, while the least productive either exit or respond in the exact opposite manner.

Suggested Citation

  • Antoniades, Alexis, 2015. "Heterogeneous Firms, Quality, and Trade," Journal of International Economics, Elsevier, vol. 95(2), pages 263-273.
  • Handle: RePEc:eee:inecon:v:95:y:2015:i:2:p:263-273
    DOI: 10.1016/j.jinteco.2014.10.002
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    More about this item

    Keywords

    Intra-industry trade; firm heterogeneity; qualilty choice; non-constant markups; quality ladders;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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