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Multi-Product Firms and Product Quality

Kalina Manova

Department of Economics, University of Oxford; Stanford University - Department of Economics; NBER

Zhiwei Zhang

Nomura Holdings, Inc. (NHI) - Nomura Securities Co., Ltd.; International Monetary Fund (on leave)

December 2012

This paper proposes that quality differentiation is an important feature of the operations of multi-product firms. We develop a model in which manufacturers vary product quality across their product range by using inputs of different quality levels. Firms' core competency is in varieties of superior quality that generate higher sales despite being more expensive. Using detailed customs data for China, we establish four new stylized facts consistent with this model. First, firms earn more bilateral and global revenues from their more expensive products. Second, exporters focus on their top expensive goods, drop cheaper articles and earn lower revenues in markets where they sell fewer varieties. Third, companies' sales are more skewed towards their core expensive goods in destinations where they offer less items. Finally, export prices are positively correlated with input prices across products within a firm. Our results have important implications for the aggregate and distributional effects of trade reforms and exchange rate movements.

Number of Pages in PDF File: 37

Keywords: Heterogeneous firms, multi-product firms, product quality, export prices

JEL Classification: D22, F10, F12, F14, L10, L11, L15

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Date posted: December 13, 2012  

Suggested Citation

Manova, Kalina and Zhang, Zhiwei, Multi-Product Firms and Product Quality (December 2012). Available at SSRN: https://ssrn.com/abstract=2188517 or http://dx.doi.org/10.2139/ssrn.2188517

Contact Information

Kalina B. Manova (Contact Author)
Department of Economics, University of Oxford ( email )
Oxford, UK
United Kingdom
Stanford University - Department of Economics ( email )
Landau Economics Building
579 Serra Mall
Stanford, CA 94305-6072
United States
NBER ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Zhiwei Zhang
Nomura Holdings, Inc. (NHI) - Nomura Securities Co., Ltd. ( email )
Hong Kong
International Monetary Fund (on leave) ( email )
700 19th Street N.W.
Washington, DC 20431
United States
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