International Trade with Heterogenous Firms and Asymmetric Product Varieties

Catholic University of Leuven (KUL) MSI Working Paper No. 1005

27 Pages Posted: 15 Aug 2010

See all articles by Carlo Altomonte

Carlo Altomonte

Bocconi University - Department of Policy Analysis and Public Management

Italo Colantone

Bocconi University

Enrico Pennings

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE); Tinbergen Institute; Erasmus Research Institute of Management (ERIM)

Date Written: June 2010

Abstract

We extend the Melitz-Ottaviano (2008) model by introducing asymmetric groups of varieties in terms of degree of product differentiation. The introduction of these different market segments in the demand system allows us to structurally derive more complex relations between firm productivity, size and markups, which ultimately depend on the degree of product differentiation, for both the closed and open economy settings. The theoretical results are tested at the empirical level by comparing the performance of French wine producers in market segments characterized by heterogeneous levels of product differentiation, defined geographically based on the "Denomination of Controlled Origin" areas.

Suggested Citation

Altomonte, Carlo and Colantone, Italo and Pennings, Enrico, International Trade with Heterogenous Firms and Asymmetric Product Varieties (June 2010). Catholic University of Leuven (KUL) MSI Working Paper No. 1005. Available at SSRN: https://ssrn.com/abstract=1658382 or http://dx.doi.org/10.2139/ssrn.1658382

Carlo Altomonte (Contact Author)

Bocconi University - Department of Policy Analysis and Public Management ( email )

Via Roentgen 1
Milan, 20136
Italy

Italo Colantone

Bocconi University ( email )

Via Sarfatti, 25
Milan, MI 20136
Italy

Enrico Pennings

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

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