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Multiproduct Firms, Income Distribution, and Trade

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  • Marcia M Schafgans
  • Joachim Stibora

Abstract

We develop a general equilibrium model of multiproduct fi rms with quality differentiated goods. Households are characterized by an heterogeneous taste for the differentiated good and their income level. The use of non-homothetic preferences and vertical product differentiation (product quality) enables us to analyze how distributional changes in income affect the number of vertically differentiated firms, their product range and prices in the presence of strategic interaction across rms. The implications of lowering the barriers to trade within this setting are considered as well.

Suggested Citation

  • Marcia M Schafgans & Joachim Stibora, 2014. "Multiproduct Firms, Income Distribution, and Trade," STICERD - Economics of Industry Papers 52, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
    • Handle: RePEc:cep:stieip:52
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    References listed on IDEAS

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    1. Pablo Fajgelbaum & Gene M. Grossman & Elhanan Helpman, 2011. "Income Distribution, Product Quality, and International Trade," Journal of Political Economy, University of Chicago Press, vol. 119(4), pages 721-765.
    2. Justin P. Johnson & David P. Myatt, 2003. "Multiproduct Quality Competition: Fighting Brands and Product Line Pruning," American Economic Review, American Economic Association, vol. 93(3), pages 748-774, June.
    3. Swati Dhingra, 2013. "Trading Away Wide Brands for Cheap Brands," American Economic Review, American Economic Association, vol. 103(6), pages 2554-2584, October.
    4. Christian Broda & David E. Weinstein, 2010. "Product Creation and Destruction: Evidence and Price Implications," American Economic Review, American Economic Association, vol. 100(3), pages 691-723, June.
    5. Peter K. Schott, 2004. "Across-Product Versus Within-Product Specialization in International Trade," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 119(2), pages 647-678.
    6. Hallak, Juan Carlos, 2006. "Product quality and the direction of trade," Journal of International Economics, Elsevier, vol. 68(1), pages 238-265, January.
    7. Goldberg, Pinelopi Koujianou, 1995. "Product Differentiation and Oligopoly in International Markets: The Case of the U.S. Automobile Industry," Econometrica, Econometric Society, vol. 63(4), pages 891-951, July.
    8. Amit Khandelwal, 2010. "The Long and Short (of) Quality Ladders," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 77(4), pages 1450-1476.
    9. Train,Kenneth E., 2009. "Discrete Choice Methods with Simulation," Cambridge Books, Cambridge University Press, number 9780521747387, November.
    10. Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, vol. 63(4), pages 841-890, July.
    11. Pablo D. Fajgelbaum, 2011. "Income Distribution, Product Quality and International Trade," 2011 Meeting Papers 415, Society for Economic Dynamics.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Multiproduct Firms; Endogenous Product Scope; Product Quality; Income Distribution; Discrete Choice ; Trade Liberalization; Oligopoly;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation

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