Market Size, Competition, and the Product Mix of Exporters
Thierry Mayer, Marc J. Melitz, Gianmarco I. P. Ottaviano
American Economic Review · 2014 · Volume 104 · Issue 2
Abstract
We build a theoretical model of multi-product firms that highlights how competition across market destinations affects both a firm's exported product range and product mix. We show how tougher competition in an export market induces a firm to skew its export sales toward its best performing products. We find very strong confirmation of this competitive effect for French exporters across export market destinations. Theoretically, this within-firm change in product mix driven by the trading environment has important repercussions on firm productivity. A calibrated fit to our theoretical model reveals that these productivity effects are potentially quite large.
Keywords
Firm Behavior: Theory, Production, Cost, Capital, Total Factor, and Multifactor Productivity, Capacity, Trade Policy, International Trade Organizations, Empirical Studies of Trade, Open Economy Macroeconomics, Pricing, and Market Structure, Size Distribution of Firms
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