Endogenous Market Structure and Trade

Many agricultural products are exported from a small number countries and few export traders are typically involved. This is the case for maple syrup whose production takes place in eastern Canada and in the northeastern part of the United States. Corner solutions in oligopoly models usually arise because of asymmetries in trade and procurement costs. Such asymmetries can be ruled out in the case of Canadian and US maple syrup exports, yet many importing countries purchase only either from Canada or from the US. A theory of endogenous market structures based on duopoly competition with fixed costs is developed. It explains many stylized facts including that large markets have a higher probability of accommodating duopoly competition while smaller markets are more likely to “naturally” attract a single entrant or no entrant at all. A random parameter multinomial logit model is used to explain market structure and probability estimates are used to correct for potential selection biases in market-structure-specific gravity equations.