Verti-Zontal Differentiation in Export Markets

44 Pages Posted: 5 Jul 2014

See all articles by Francesco Di Comite

Francesco Di Comite

European Union - Directorate General for Economic and Financial Affairs (DG ECFIN); European Commission, Joint Research Centre, Sevilla; Catholic University of Louvain (UCL)

Jacques-François Thisse

Catholic University of Louvain (UCL); Centre for Economic Policy Research (CEPR)

Hylke Vandenbussche

Catholic University of Leuven (KUL), CEPR

Multiple version iconThere are 2 versions of this paper

Date Written: May 13, 2014

Abstract

Many trade models of monopolistic competition identify cost efficiency as the main determinant of firm performance in export markets. To date, the analysis of demand factors has received much less attention. We propose a new model where consumer preferences are asymmetric across varieties and heterogeneous across countries. The model generates new predictions and allows for an identification of horizontal differentiation (taste) clearly distinguished from vertical differentiation (quality). Data patterns observed in Belgian firm-product level exports by destination are congruent with the predictions and seem to warrant a richer modelling of consumer demand.

Keywords: heterogeneous firms, heterogeneous consumers, product differentiation, asymmetric preferences, monopolistic competition

JEL Classification: D43, F12, F14, L16

Suggested Citation

Di Comite, Francesco and Thisse, Jacques-François and Vandenbussche, Hylke, Verti-Zontal Differentiation in Export Markets (May 13, 2014). ECB Working Paper No. 1680. Available at SSRN: https://ssrn.com/abstract=2436417

Francesco Di Comite (Contact Author)

European Union - Directorate General for Economic and Financial Affairs (DG ECFIN) ( email )

BU-1 05/190
Brussels, Bruxelles B-1049
Belgium

European Commission, Joint Research Centre, Sevilla ( email )

Call Inca Garcilaso 3
Sevilla, SE 41092
Spain

Catholic University of Louvain (UCL) ( email )

Place Montesquieu, 3
Louvain-la-Neuve, 1348
Belgium

Jacques-François Thisse

Catholic University of Louvain (UCL) ( email )

Place des Doyens 1
Louvain-la-Neuve, 1348
Belgium

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Hylke Vandenbussche

Catholic University of Leuven (KUL), CEPR ( email )

Faculty of Economics
Naamsestraat 69
B-3000 Leuven, 3000
Belgium
+32 16 326 920 (Phone)
+32 16 326 732 (Fax)

HOME PAGE: https://www.sites.google.com/site/vandenbusschehylke/home-1

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