Globalization and Heterogeneity: Evidence from Hollywood

58 Pages Posted: 15 Nov 2022

See all articles by Konrad Adler

Konrad Adler

University of Bonn, Institute of Finance and Statistics

Simon Fuchs

Federal Reserve Banks - Federal Reserve Bank of Atlanta

Date Written: October 1, 2022

Abstract

Linder (1961) conjectured that taste differences could impede trade flows. We extend Krugman (1980) to allow for producers that face taste heterogeneity with volatile demand. Consumers are characterized by different taste over product attributes and idiosyncratic risk. Firms face a portfolio type of problem where they trade off supplying the largest consumer groups against higher exposure to group-specific risk. We develop an empirical strategy to estimate consumer taste from observed market shares across multiple distinct markets of the same product, as well as the key parameters that pin down the firm’s portfolio choice problem. We apply our framework to estimate the impact of the rise of China on the global movies market and characterize the heterogeneous welfare effects across countries.

Keywords: taste heterogeneity, volatility, gains from trade

JEL Classification: F11, F14

Suggested Citation

Adler, Konrad and Fuchs, Simon, Globalization and Heterogeneity: Evidence from Hollywood (October 1, 2022). FRB Atlanta Working Paper No. 2022-14, Available at SSRN: https://ssrn.com/abstract=4277195 or http://dx.doi.org/10.29338/wp2022-14

Konrad Adler (Contact Author)

University of Bonn, Institute of Finance and Statistics

Adenauerallee 24-26
Bonn, 53113
Germany

Simon Fuchs

Federal Reserve Banks - Federal Reserve Bank of Atlanta ( email )

1000 Peachtree Street N.E.
Atlanta, GA 30309-4470
United States

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