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Market Size, Competition, and the Product Mix of Exporters

  • Mayer, Thierry
  • Melitz, Marc J
  • Ottaviano, Gianmarco

We build a theoretical model of multi-product firms that highlights how market size and geography (the market sizes of and bilateral economic distances to trading partners) affect both a firm's exported product range and its exported product mix across market destinations (the distribution of sales across products for a given product range). We show how tougher competition in an export market induces a firm to skew its export sales towards its best performing products. We find very strong confirmation of this competitive effect for French exporters across export market destinations. Trade models based on exogenous markups cannot explain this strong significant link between destination market characteristics and the within-firm skewness of export sales (after controlling for bilateral trade costs). Theoretically, this within firm change in product mix driven by the trading environment has important repercussions on firm productivity and how it responds to changes in that trading environment.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 8349.

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Date of creation: Apr 2011
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Handle: RePEc:cpr:ceprdp:8349
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  1. Matthieu Crozet & Pamina Koenig, 2007. "Structural gravity equations with intensive and extensive margins," EconomiX Working Papers 2007-36, University of Paris West - Nanterre la Défense, EconomiX.
  2. Gianmarco Ottaviano & Thierry Mayer, . "The happy few: the internationalisation of European firms," Blueprints, Bruegel, number 12, March.
  3. Jonathan Eaton & Samuel Kortum & Francis Kramarz, 2008. "An Anatomy of International Trade: Evidence from French Firms," NBER Working Papers 14610, National Bureau of Economic Research, Inc.
  4. 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.
  5. repec:spo:wpecon:info:hdl:2441/10147 is not listed on IDEAS
  6. Redding, Stephen & Venables, Anthony J., 2004. "Economic geography and international inequality," Journal of International Economics, Elsevier, vol. 62(1), pages 53-82, January.
  7. Iacovone, Leonardo & Javorcik, Beata S., 2008. "Multi-product exporters : diversification and micro-level dynamics," Policy Research Working Paper Series 4723, The World Bank.
  8. Andrew B. Bernard & J. Bradford Jensen & Stephen J. Redding & Peter K. Schott, 2007. "Firms in International Trade," NBER Working Papers 13054, National Bureau of Economic Research, Inc.
  9. Volker Nocke & Stephen Yeaple, 2006. "Globalization and Endogenous Firm Scope," NBER Working Papers 12322, National Bureau of Economic Research, Inc.
  10. James Harrigan & Haiyan Deng, 2010. "China's Local Comparative Advantage," NBER Chapters, in: China's Growing Role in World Trade, pages 109-133 National Bureau of Economic Research, Inc.
  11. Costas Arkolakis & Marc-Andreas Muendler, 2010. "The Extensive Margin of Exporting Products: A Firm-level Analysis," CESifo Working Paper Series 3309, CESifo Group Munich.
  12. Gregory Corcos & Massimo Del Gatto & Giordano Mion & Gianmarco I.P. Ottaviano, 2009. "Productivity and Firm Selection: Quantifying the "New" Gains from Trade," KITeS Working Papers 002, KITeS, Centre for Knowledge, Internationalization and Technology Studies, Universita' Bocconi, Milano, Italy, revised Mar 2009.
  13. Marc J. Melitz & Gianmarco I.P. Ottaviano, 2005. "Market Size, Trade, and Productivity," Development Working Papers 201, Centro Studi Luca d'Agliano, University of Milano.
  14. Allanson, Paul & Montagna, Catia, 2005. "Multiproduct firms and market structure: An explorative application to the product life cycle," International Journal of Industrial Organization, Elsevier, vol. 23(7-8), pages 587-597, September.
  15. Andrew B. Bernard & Stephen J. Redding & Peter K. Schott, 2006. "Multi-Product Firms and Trade Liberalization," NBER Working Papers 12782, National Bureau of Economic Research, Inc.
  16. Costas Arkolakis & Arnaud Costinot & Andrés Rodríguez-Clare, 2009. "New Trade Models, Same Old Gains?," NBER Working Papers 15628, National Bureau of Economic Research, Inc.
  17. John Baldwin & Wulong Gu, 2009. "The Impact of Trade on Plant Scale, Production-Run Length and Diversification," NBER Chapters, in: Producer Dynamics: New Evidence from Micro Data, pages 557-592 National Bureau of Economic Research, Inc.
  18. Andrew B. Bernard & Jonathan Eaton & J. Bradford Jensen & Samuel Kortum, 2003. "Plants and Productivity in International Trade," American Economic Review, American Economic Association, vol. 93(4), pages 1268-1290, September.
  19. Keith Head & Thierry Mayer, 2011. "Gravity, market potential and economic development," Post-Print hal-01024204, HAL.
  20. De Loecker, Jan & Goldberg, Pinelopi Koujianou & Khandelwal, Amit & Pavcnik, Nina, 2012. "Prices, Markups and Trade Reform," CEPR Discussion Papers 8900, C.E.P.R. Discussion Papers.
  21. Elhanan Helpman & Marc J. Melitz & Stephen R. Yeaple, 2004. "Export Versus FDI with Heterogeneous Firms," American Economic Review, American Economic Association, vol. 94(1), pages 300-316, March.
  22. Robert Feenstra & Hong Ma, 2007. "Optimal Choice of Product Scope for Multiproduct Firms under Monopolistic Competition," NBER Working Papers 13703, National Bureau of Economic Research, Inc.
  23. repec:pri:cepsud:231deloecker is not listed on IDEAS
  24. Timothy Dunne & J. Bradford Jensen & Mark J. Roberts, 2009. "Producer Dynamics: New Evidence from Micro Data," NBER Books, National Bureau of Economic Research, Inc, number dunn05-1, March.
  25. Thierry Mayer & Gianmarco Ottaviano, 2007. "The happy few: the internationalisation of European firms New facts based on firm-level evidence," Sciences Po publications info:hdl:2441/10147, Sciences Po.
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