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Verti-zontal differentiation in export markets

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  • 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
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    References listed on IDEAS

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    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

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