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Verti-zontal differentiation in export markets

Listed author(s):
  • Francesco DI COMITE
  • Jacques-François THISSE
  • Hylke VANDENBUSSCHE

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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File URL: https://lirias.kuleuven.be/bitstream/123456789/429590/1/DPS1325.pdf
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Paper provided by KU Leuven, Faculty of Economics and Business, Department of Economics in its series Working Papers Department of Economics with number ces13.25.

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Date of creation: Dec 2013
Handle: RePEc:ete:ceswps:ces13.25
Contact details of provider: Web page: http://feb.kuleuven.be/Economics/

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