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Monotone Comparative Statics for the Industry Composition

Author

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  • Peter Arendorf Bache

    (Department of Economics and Business, Aarhus University)

  • Anders Laugesen

    (Department of Economics and Business, Aarhus University)

Abstract

We let heterogeneous firms face decisions on a number of complementary activities in a monopolistically-competitive industry. The endogenous level of competition and selection regarding entry and exit of firms introduces a wedge between monotone comparative statics (MCS) at the firm level and MCS for the industry composition. The latter phenomenon is defined as first-order stochastic dominance shifts in the equilibrium distributions of all activities across active firms. We provide sufficient conditions for MCS at both levels of analysis and show that we may have either type of MCS without the other. It is therefore possible that firm-level complementarities manifest themselves more clearly at the industry level than at the firm level during comparative statics. This turns out to be the case for a large number of models and shocks considered in the recent trade literature for which we provide strong, novel, and testable predictions.

Suggested Citation

  • Peter Arendorf Bache & Anders Laugesen, 2013. "Monotone Comparative Statics for the Industry Composition," Economics Working Papers 2013-10, Department of Economics and Business Economics, Aarhus University.
    • Handle: RePEc:aah:aarhec:2013-10
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    References listed on IDEAS

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    Cited by:

    1. Emmanuel Dhyne & Ayumu Ken Kikkawa & Magne Mogstad & Felix Tintelnot, 2021. "Trade and Domestic Production Networks," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 88(2), pages 643-668.
    2. Pol Antràs & Teresa C. Fort & Felix Tintelnot, 2017. "The Margins of Global Sourcing: Theory and Evidence from US Firms," American Economic Review, American Economic Association, vol. 107(9), pages 2514-2564, September.
    3. Peter Arendorf Bache & Anders Laugesen, 2013. "Trade Liberalisation and Vertical Integration," Economics Working Papers 2013-14, Department of Economics and Business Economics, Aarhus University.

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    More about this item

    Keywords

    Complementary Activities; Firm Heterogeneity; Monotone Comparative Statics; Markups; Firm-Size Distribution; International Trade;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F61 - International Economics - - Economic Impacts of Globalization - - - Microeconomic Impacts
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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