IDEAS home Printed from https://ideas.repec.org/p/cor/louvco/2013064.html
   My bibliography  Save this paper

Verti-zontal differentiation in export markets

Author

Listed:
  • DI COMITE, Francesco

    (Université catholique de Louvain, IRES, Belgium; European Commission, Sevilla)

  • THISSE , Jacques

    (Université catholique de Louvain, CORE, Belgium; NRU Higher School of Economics, St Petersburg, Russia)

  • ,

Abstract

Many trade models of monopolistic competition identify cost efficiency as the main determinant of firm performance in export markets. To date, the analysis of demand factors has received much less attention. We propose a new model where consumer preferences are asymmetric across varieties and heterogeneous across countries. The model generates new predictions and allows for an identification of horizontal differentiation (taste) clearly distinguished from vertical differentiation (quality). Data patterns observed in Belgian firm-product level exports by destination are congruent with the predictions and seem to warrant a richer modelling of consumer demand.

Suggested Citation

  • DI COMITE, Francesco & THISSE , Jacques & ,, 2013. "Verti-zontal differentiation in export markets," LIDAM Discussion Papers CORE 2013064, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  • Handle: RePEc:cor:louvco:2013064
    as

    Download full text from publisher

    File URL: https://sites.uclouvain.be/core/publications/coredp/coredp2013.html
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Martin, Julien, 2012. "Markups, quality, and transport costs," European Economic Review, Elsevier, vol. 56(4), pages 777-791.
    2. Thierry Mayer & Marc J. Melitz & Gianmarco I. P. Ottaviano, 2021. "Market Size, Competition, and the Product Mix of Exporters," World Scientific Book Chapters, in: Firms and Workers in a Globalized World Larger Markets, Tougher Competition, chapter 5, pages 109-150, World Scientific Publishing Co. Pte. Ltd..
    3. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, February.
    4. 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.
    5. Thierry Mayer & Marc J. Melitz & Gianmarco I. P. Ottaviano, 2021. "Market Size, Competition, and the Product Mix of Exporters," World Scientific Book Chapters, in: Firms and Workers in a Globalized World Larger Markets, Tougher Competition, chapter 5, pages 109-150, World Scientific Publishing Co. Pte. Ltd..
    6. Brooks, Eileen L., 2006. "Why don't firms export more? Product quality and Colombian plants," Journal of Development Economics, Elsevier, vol. 80(1), pages 160-178, June.
    7. Hart, Oliver D, 1985. "Monopolistic Competition in the Spirit of Chamberlin: Special Results," Economic Journal, Royal Economic Society, vol. 95(380), pages 889-908, December.
    8. Matthieu Crozet & Keith Head & Thierry Mayer, 2012. "Quality Sorting and Trade: Firm-level Evidence for French Wine," Review of Economic Studies, Oxford University Press, vol. 79(2), pages 609-644.
    9. Eric A. Verhoogen, 2008. "Trade, Quality Upgrading, and Wage Inequality in the Mexican Manufacturing Sector," The Quarterly Journal of Economics, Oxford University Press, vol. 123(2), pages 489-530.
    10. Amit Khandelwal, 2010. "The Long and Short (of) Quality Ladders," Review of Economic Studies, Oxford University Press, vol. 77(4), pages 1450-1476.
    11. repec:clu:wpaper:0708-12 is not listed on IDEAS
    12. Gianmarco I. P. Ottaviano & Jacques‐François Thisse, 2011. "Monopolistic Competition, Multiproduct Firms And Product Diversity," Manchester School, University of Manchester, vol. 79(5), pages 938-951, September.
    13. Hiau Looi Kee & Kala Krishna, 2008. "Firm-Level Heterogeneous Productivity and Demand Shocks: Evidence from Bangladesh," American Economic Review, American Economic Association, vol. 98(2), pages 457-462, May.
    14. Pablo Fajgelbaum & Gene M. Grossman & Elhanan Helpman, 2011. "Income Distribution, Product Quality, and International Trade," Journal of Political Economy, University of Chicago Press, vol. 119(4), pages 721-765.
    15. Jonathan Eaton & Samuel Kortum & Francis Kramarz, 2011. "An Anatomy of International Trade: Evidence From French Firms," Econometrica, Econometric Society, vol. 79(5), pages 1453-1498, September.
    16. 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.
    17. Thierry Mayer & Marc J. Melitz & Gianmarco I. P. Ottaviano, 2021. "Market Size, Competition, and the Product Mix of Exporters," World Scientific Book Chapters, in: Firms and Workers in a Globalized World Larger Markets, Tougher Competition, chapter 5, pages 109-150, World Scientific Publishing Co. Pte. Ltd..
    18. Richard Kneller & Zhihong Yu, 2008. "Quality Selection, Chinese Exports and Theories of Heterogeneous Firm Trade," Discussion Papers 08/44, University of Nottingham, GEP.
    19. Thierry Mayer & Marc J. Melitz & Gianmarco I. P. Ottaviano, 2021. "Market Size, Competition, and the Product Mix of Exporters," World Scientific Book Chapters, in: Firms and Workers in a Globalized World Larger Markets, Tougher Competition, chapter 5, pages 109-150, World Scientific Publishing Co. Pte. Ltd..
    20. Gianmarco Ottaviano & Takatoshi Tabuchi & Jacques-François Thisse, 2021. "Agglomeration And Trade Revisited," World Scientific Book Chapters, in: Firms and Workers in a Globalized World Larger Markets, Tougher Competition, chapter 3, pages 59-85, World Scientific Publishing Co. Pte. Ltd..
    21. Jaskold Gabszewicz, J. & Thisse, J. -F., 1979. "Price competition, quality and income disparities," Journal of Economic Theory, Elsevier, vol. 20(3), pages 340-359, June.
    22. 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.
    23. 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..
    24. Marc J. Melitz & Gianmarco I. P. Ottaviano, 2008. "Market Size, Trade, and Productivity (DOI:10.111/j.1467-937x.2007.00463.x)," Review of Economic Studies, Oxford University Press, vol. 75(3), pages 985-985.
    25. Lucia Foster & John Haltiwanger & Chad Syverson, 2016. "The Slow Growth of New Plants: Learning about Demand?," Economica, London School of Economics and Political Science, vol. 83(329), pages 91-129, January.
    26. 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.
    27. Martina Lawless & Karl Whelan, 2014. "Where Do Firms Export, How Much and Why?," The World Economy, Wiley Blackwell, vol. 37(8), pages 1027-1050, August.
    28. Elhanan Helpman & Marc Melitz & Yona Rubinstein, 2008. "Estimating Trade Flows: Trading Partners and Trading Volumes," The Quarterly Journal of Economics, Oxford University Press, vol. 123(2), pages 441-487.
    29. Lucia Foster & John Haltiwanger & Chad Syverson, 2008. "Reallocation, Firm Turnover, and Efficiency: Selection on Productivity or Profitability?," American Economic Review, American Economic Association, vol. 98(1), pages 394-425, March.
    30. Matthieu Crozet & Keith Head & Thierry Mayer, 2012. "Quality Sorting and Trade: Firm-level Evidence for French Wine," Review of Economic Studies, Oxford University Press, vol. 79(2), pages 609-644.
    31. Robert C. Feenstra & John Romalis, 2014. "International Prices and Endogenous Quality," The Quarterly Journal of Economics, Oxford University Press, vol. 129(2), pages 477-527.
    32. Matthieu Crozet & Keith Head & Thierry Mayer, 2012. "Quality Sorting and Trade: Firm-level Evidence for French Wine," Review of Economic Studies, Oxford University Press, vol. 79(2), pages 609-644.
    33. Carsten Eckel & J. Peter Neary, 2010. "Multi-Product Firms and Flexible Manufacturing in the Global Economy," Review of Economic Studies, Oxford University Press, vol. 77(1), pages 188-217.
    34. Pablo D. Fajgelbaum, 2011. "Income Distribution, Product Quality and International Trade," 2011 Meeting Papers 415, Society for Economic Dynamics.
    35. Matthieu Crozet & Keith Head & Thierry Mayer, 2012. "Quality Sorting and Trade: Firm-level Evidence for French Wine," Review of Economic Studies, Oxford University Press, vol. 79(2), pages 609-644.
    36. Thierry Mayer & Marc J. Melitz & Gianmarco I. P. Ottaviano, 2021. "Market Size, Competition, and the Product Mix of Exporters," World Scientific Book Chapters, in: Firms and Workers in a Globalized World Larger Markets, Tougher Competition, chapter 5, pages 109-150, World Scientific Publishing Co. Pte. Ltd..
    37. Maurice Kugler & Eric Verhoogen, 2012. "Prices, Plant Size, and Product Quality," Review of Economic Studies, Oxford University Press, vol. 79(1), pages 307-339.
    38. David Hummels & Peter J. Klenow, 2005. "The Variety and Quality of a Nation's Exports," American Economic Review, American Economic Association, vol. 95(3), pages 704-723, June.
    39. Yongmin Chen & Michael H. Riordan, 2007. "Price and Variety in the Spokes Model," Economic Journal, Royal Economic Society, vol. 117(522), pages 897-921, July.
    40. Munch, Jakob R. & Nguyen, Daniel X., 2014. "Decomposing firm-level sales variation," Journal of Economic Behavior & Organization, Elsevier, vol. 106(C), pages 317-334.
    41. Thierry Mayer & Marc J. Melitz & Gianmarco I. P. Ottaviano, 2021. "Market Size, Competition, and the Product Mix of Exporters," World Scientific Book Chapters, in: Firms and Workers in a Globalized World Larger Markets, Tougher Competition, chapter 5, pages 109-150, World Scientific Publishing Co. Pte. Ltd..
    42. Jonathan Vogel, 2008. "Spatial Competition with Heterogeneous Firms," Journal of Political Economy, University of Chicago Press, vol. 116(3), pages 423-466, June.
    43. Oliver D. Hart, 1985. "Monopolistic Competition in the Spirit of Chamberlin: A General Model," Review of Economic Studies, Oxford University Press, vol. 52(4), pages 529-546.
    44. Andrew B. Bernard & Stephen J. Redding & Peter K. Schott, 2011. "Multiproduct Firms and Trade Liberalization," The Quarterly Journal of Economics, Oxford University Press, vol. 126(3), pages 1271-1318.
    45. Bastos, Paulo & Silva, Joana, 2010. "The quality of a firm's exports: Where you export to matters," Journal of International Economics, Elsevier, vol. 82(2), pages 99-111, November.
    46. 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.
    47. Aw, Bee Yan & Batra, Geeta & Roberts, Mark J., 2001. "Firm heterogeneity and export-domestic price differentials: A study of Taiwanese electronics products," Journal of International Economics, Elsevier, vol. 54(1), pages 149-169, June.
    48. Jessie Handbury & David E. Weinstein, 2015. "Goods Prices and Availability in Cities," Review of Economic Studies, Oxford University Press, vol. 82(1), pages 258-296.
    49. Thierry Mayer & Marc J. Melitz & Gianmarco I. P. Ottaviano, 2021. "Market Size, Competition, and the Product Mix of Exporters," World Scientific Book Chapters, in: Firms and Workers in a Globalized World Larger Markets, Tougher Competition, chapter 5, pages 109-150, World Scientific Publishing Co. Pte. Ltd..
    50. Johnson, Robert C., 2012. "Trade and prices with heterogeneous firms," Journal of International Economics, Elsevier, vol. 86(1), pages 43-56.
    51. Thierry Mayer & Marc J. Melitz & Gianmarco I. P. Ottaviano, 2021. "Market Size, Competition, and the Product Mix of Exporters," World Scientific Book Chapters, in: Firms and Workers in a Globalized World Larger Markets, Tougher Competition, chapter 5, pages 109-150, World Scientific Publishing Co. Pte. Ltd..
    52. Matthieu Crozet & Keith Head & Thierry Mayer, 2012. "Quality Sorting and Trade: Firm-level Evidence for French Wine," Review of Economic Studies, Oxford University Press, vol. 79(2), pages 609-644.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kalina Manova & Zhiwei Zhang, 2012. "Export Prices Across Firms and Destinations," The Quarterly Journal of Economics, Oxford University Press, vol. 127(1), pages 379-436.
    2. Chen, Natalie & Juvenal, Luciana, 2016. "Quality, trade, and exchange rate pass-through," Journal of International Economics, Elsevier, vol. 100(C), pages 61-80.
    3. Chen, Natalie & Juvenal, Luciana, 2018. "Quality and the Great Trade Collapse," Journal of Development Economics, Elsevier, vol. 135(C), pages 59-76.
    4. Manova, Kalina & Yu, Zhihong, 2017. "Multi-product firms and product quality," Journal of International Economics, Elsevier, vol. 109(C), pages 116-137.
    5. Francesco Di Comite & Jacques-François Thisse & Hylke Vandenbussche, 2011. "Verti-zontal Differentiation in Monopolistic Competition," Development Working Papers 322, Centro Studi Luca d'Agliano, University of Milano, revised 17 Oct 2011.
    6. Arnarson, Björn Thor, 2020. "The superstar and the followers: Intra-firm product complementarity in international trade," Journal of Economic Behavior & Organization, Elsevier, vol. 177(C), pages 277-304.
    7. Raphael Auer, 2009. "Product Heterogeneity, Within-Industry Trade Patterns, and the Home Bias of Consumption?," Working Papers 09.05, Swiss National Bank, Study Center Gerzensee.
    8. 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.
    9. Martin, Julien & Mayneris, Florian, 2015. "High-end variety exporters defying gravity: Micro facts and aggregate implications," Journal of International Economics, Elsevier, vol. 96(1), pages 55-71.
    10. Duvaleix, Sabine & Emlinger, Charlotte & Gaigné, Carl & Latouche, Karine, 2021. "Geographical indications and trade: Firm-level evidence from the French cheese industry," Food Policy, Elsevier, vol. 102(C).
    11. Ariu, Andrea & Mayneris, Florian & Parenti, Mathieu, 2020. "One way to the top: How services boost the demand for goods," Journal of International Economics, Elsevier, vol. 123(C).
    12. Chen, Natalie & Juvenal, Luciana, 2022. "Markups, quality, and trade costs," Journal of International Economics, Elsevier, vol. 137(C).
    13. Hu, Zhongzhong & Rodrigue, Joel & Tan, Yong & Yu, Chunhai, 2017. "Product churning, reallocation, and Chinese export growth," Journal of Economic Behavior & Organization, Elsevier, vol. 143(C), pages 147-164.
    14. Antoniades, Alexis, 2015. "Heterogeneous Firms, Quality, and Trade," Journal of International Economics, Elsevier, vol. 95(2), pages 263-273.
    15. Xuefeng, Qian & Yaşar, Mahmut, 2016. "Export Market Diversification and Firm Productivity: Evidence from a Large Developing Country," World Development, Elsevier, vol. 82(C), pages 28-47.
    16. Dinopoulos, Elias & Kalyvitis, Sarantis & Katsimi, Margarita, 2020. "Variable export price elasticity, product quality, and credit constraints: Theory and evidence from Greek firms," Journal of International Money and Finance, Elsevier, vol. 104(C).
    17. Sisi Yin & Yunshu Gao & Bo Gao, 2022. "Multi‐product firms, product quality heterogeneity and trade liberalisation," The World Economy, Wiley Blackwell, vol. 45(6), pages 1856-1875, June.
    18. Flora Bellone & Patrick Musso & Lionel Nesta & Frederic Warzynski, 2016. "International trade and firm-level markups when location and quality matter," Journal of Economic Geography, Oxford University Press, vol. 16(1), pages 67-91.
    19. Brambilla, Irene & Porto, Guido G., 2016. "High-income export destinations, quality and wages," Journal of International Economics, Elsevier, vol. 98(C), pages 21-35.
    20. Andrew B. Bernard & J. Bradford Jensen & Stephen J. Redding & Peter K. Schott, 2012. "The Empirics of Firm Heterogeneity and International Trade," Annual Review of Economics, Annual Reviews, vol. 4(1), pages 283-313, July.

    More about this item

    Keywords

    heterogeneous firms; heterogeneous consumers; horizontal differentiation; vertical differentiation; asymmetric preferences; monopolistic competition;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cor:louvco:2013064. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://edirc.repec.org/data/coreebe.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Alain GILLIS (email available below). General contact details of provider: https://edirc.repec.org/data/coreebe.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.