Market Size, Competition, and the Product Mix of Exporters

39 Pages Posted: 26 Jan 2012

See all articles by Thierry Mayer

Thierry Mayer

Institut d'Etudes Politiques de Paris (Sciences Po)

Marc J. Melitz

Centre for Economic Policy Research (CEPR); Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

Gianmarco I.P. Ottaviano

Bocconi University - Department of Economics and Paolo Baffi Centre on Central Banking and Financial Regulation

Multiple version iconThere are 3 versions of this paper

Date Written: October 2011

Abstract

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.

Keywords: trading partners, multi product firms, trade models

JEL Classification: F0

Suggested Citation

Mayer, Thierry and Melitz, Marc J. and Melitz, Marc J. and Ottaviano, Gianmarco I.P., Market Size, Competition, and the Product Mix of Exporters (October 2011). Centro Studi Luca d'Agliano Development Studies Working Paper No. 316, Available at SSRN: https://ssrn.com/abstract=1992530 or http://dx.doi.org/10.2139/ssrn.1992530

Thierry Mayer

Institut d'Etudes Politiques de Paris (Sciences Po) ( email )

Marc J. Melitz

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Harvard University - Department of Economics ( email )

Littauer Center
Cambridge, MA 02138
United States
617-495-8297 (Phone)
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National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
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Gianmarco I.P. Ottaviano (Contact Author)

Bocconi University - Department of Economics and Paolo Baffi Centre on Central Banking and Financial Regulation ( email )

Via Gobbi 5
Milan, 20136
Italy

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