Abstract:

We build a theoretical model of multi-product firms that highlights how competition across market destinations affects both a firm's exported product range and product mix. 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. Theoretically, this within firm change in product mix driven by the trading environment has important repercussions on firm productivity. A calibrated fit to our theoretical model reveals that these productivity effects are potentially quite large.

Market Size, Competition, and the Product Mix of Exporters, Thierry Mayer, Marc J. Melitz and Gianmarco I. P. Ottaviano, American Economic Review, Volume 104, Issue 2, February 2014