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Selection Effects with Heterogeneous Firms

  • Monika Mrázová
  • J. Peter Neary

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 marketaccess 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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File URL: http://cep.lse.ac.uk/pubs/download/dp1174.pdf
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Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp1174.

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Date of creation: Oct 2012
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Handle: RePEc:cep:cepdps:dp1174
Contact details of provider: Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP

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  1. Davies, Ronald B. & Eckel, Carsten, 2010. "Tax Competition for Heterogeneous Firms with Endogenous Entry," Munich Reprints in Economics 20021, University of Munich, Department of Economics.
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  5. Bertoletti, Paolo & Epifani, Paolo, 2014. "Monopolistic competition: CES redux?," Journal of International Economics, Elsevier, vol. 93(2), pages 227-238.
  6. Costinot, Arnaud, 2007. "Heterogeneity and Trade," University of California at San Diego, Economics Working Paper Series qt4ns3899g, Department of Economics, UC San Diego.
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  13. Athey, Susan, 2002. "Monotone Comparative Statics Under Uncertainty," Scholarly Articles 3372263, Harvard University Department of Economics.
  14. Jonathan Vogel & Arnaud Costinot, 2008. "Matching and Inequality in the World Economy," 2008 Meeting Papers 879, Society for Economic Dynamics.
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  19. Dermot Leahy & Catia Montagna, 2009. "Outsourcing vs FDI in Oligopoly Equilibrium," Spatial Economic Analysis, Taylor & Francis Journals, vol. 4(2), pages 149-166.
  20. Pol Antras & Elhanan Helpman, 2003. "Global Sourcing," Harvard Institute of Economic Research Working Papers 2005, Harvard - Institute of Economic Research.
  21. repec:cdl:ucsdec:468345 is not listed on IDEAS
  22. Oldenski, Lindsay, 2012. "Export Versus FDI and the Communication of Complex Information," Journal of International Economics, Elsevier, vol. 87(2), pages 312-322.
  23. Kohler Wilhelm K & Smolka Marcel, 2011. "Sourcing Premia with Incomplete Contracts: Theory and Evidence," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 11(1), pages 1-39, February.
  24. ZHELOBODKO, Evgeny & KOKOVIN, Sergey & Parenti, Mathieu & THISSE, Jacques-François, . "Monopolistic competition beyond the constant elasticity of substitution," CORE Discussion Papers RP 2488, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  25. Rikard Forslid & Toshihiro Okubo & Karen Helene Ulltveit-Moe, 2014. "Why are Firms that Export Cleaner? International Trade and CO2 Emissions," CESifo Working Paper Series 4817, CESifo Group Munich.
  26. Costas Arkolakis, 2010. "Market Penetration Costs and the New Consumers Margin in International Trade," Journal of Political Economy, University of Chicago Press, vol. 118(6), pages 1151 - 1199.
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  28. 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.
  29. repec:cor:louvrp:-2488 is not listed on IDEAS
  30. repec:hrv:faseco:4784029 is not listed on IDEAS
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