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Verti-zontal differentiation in export markets

  • 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)

  • ,

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.

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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2013064.

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Date of creation: 11 Dec 2013
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Handle: RePEc:cor:louvco:2013064
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