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Technology, Demand, And The Size Distribution Of Firms

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  • Peter Neary
  • Monika Mrázová
  • Mathieu Parenti

Abstract

Abstract We derive exact conditions relating the distributions of firm productivity, sales, output, and markups to the form of demand; in particular, for a large family (including Pareto, log-normal, and Fréchet), the distributions of productivity and output are the same if and only if demand is "CREMR" (Constant Revenue Elasticity of Marginal Revenue). Moreover, we use the Kullback-Leibler Divergence to quantify the information loss when a predicted distribution fails to match the actual one; and we find that,to explain the sales distribution, the choice between Pareto and log-normal productivity distributions matters less than the choice between CREMR and other demands.

Suggested Citation

  • Peter Neary & Monika Mrázová & Mathieu Parenti, 2015. "Technology, Demand, And The Size Distribution Of Firms," Economics Series Working Papers 774, University of Oxford, Department of Economics.
  • Handle: RePEc:oxf:wpaper:774
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    File URL: http://www.economics.ox.ac.uk/materials/papers/14328/paper-774.pdf
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    References listed on IDEAS

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    1. Evgeny Zhelobodko & Sergey Kokovin & Mathieu Parenti & Jacques‐François Thisse, 2012. "Monopolistic Competition: Beyond the Constant Elasticity of Substitution," Econometrica, Econometric Society, vol. 80(6), pages 2765-2784, November.
    2. Parenti, Mathieu & Ushchev, Philip & Thisse, Jacques-François, 2017. "Toward a theory of monopolistic competition," Journal of Economic Theory, Elsevier, vol. 167(C), pages 86-115.
    3. repec:eee:inecon:v:112:y:2018:i:c:p:150-165 is not listed on IDEAS
    4. Roc Armenter & Mikl?s Koren, 2014. "A Balls-and-Bins Model of Trade," American Economic Review, American Economic Association, vol. 104(7), pages 2127-2151, July.
    5. Bertoletti, Paolo & Epifani, Paolo, 2014. "Monopolistic competition: CES redux?," Journal of International Economics, Elsevier, vol. 93(2), pages 227-238.
    6. A. R. Lamorgese & A. Linarello & Frederic Warzynski, 2014. "Free Trade Agreements and Firm-Product Markups in Chilean Manufacturing," Economics Working Papers 2014-16, Department of Economics and Business Economics, Aarhus University.
    7. Felix Tintelnot, 2017. "Global Production with Export Platforms," The Quarterly Journal of Economics, Oxford University Press, vol. 132(1), pages 157-209.
    8. Colin Cameron, A. & Windmeijer, Frank A. G., 1997. "An R-squared measure of goodness of fit for some common nonlinear regression models," Journal of Econometrics, Elsevier, vol. 77(2), pages 329-342, April.
    9. Kunal Dasgupta & Jordi Mondria, 2014. "Inattentive Importers," Working Papers tecipa-512, University of Toronto, Department of Economics.
    10. John Muellbauer, 1975. "Aggregation, Income Distribution and Consumer Demand," Review of Economic Studies, Oxford University Press, vol. 42(4), pages 525-543.
    11. Deaton, Angus S & Muellbauer, John, 1980. "An Almost Ideal Demand System," American Economic Review, American Economic Association, vol. 70(3), pages 312-326, June.
    12. Paolo Bertoletti & Federico Etro, 2013. "Monopolistic Competition: A Dual Approach," DEM Working Papers Series 043, University of Pavia, Department of Economics and Management.
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    Citations

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    Cited by:

    1. Nigai, Sergey, 2017. "A tale of two tails: Productivity distribution and the gains from trade," Journal of International Economics, Elsevier, vol. 104(C), pages 44-62.
    2. Alessandra Bonfiglioli & Rosario Crinò & Gino Gancia, 2014. "Betting on exports: Trade and endogenous heterogeneity," Economics Working Papers 1460, Department of Economics and Business, Universitat Pompeu Fabra, revised Apr 2016.
    3. repec:eee:reecon:v:71:y:2017:i:4:p:690-703 is not listed on IDEAS
    4. Sophie Hatte & Pamina Koenig, 2017. "The Geography of NGO Activism against Multinational Corporations," PSE Working Papers halshs-01518148, HAL.
    5. Görg, Holger & Henze, Philipp & Jienwatcharamongkhol, Viroj & Kopasker, Daniel & Molana, Hassan & Montagna, Catia & Sjöholm, Fredrik, 2017. "Firm size distribution and employment fluctuations: Theory and evidence," Research in Economics, Elsevier, vol. 71(4), pages 690-703.

    More about this item

    Keywords

    CREMR Demands; Heterogeneous Firms; Kullback-Leibler Divergence; Log-Normal Distribution; Pareto Distribution.;

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation

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