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Verti-zontal differentiation in export markets

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  • Di Comite, Francesco
  • Thisse, Jacques-François
  • Vandenbussche, Hylke

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. JEL Classification: D43, F12, F14, L16

Suggested Citation

  • Di Comite, Francesco & Thisse, Jacques-François & Vandenbussche, Hylke, 2014. "Verti-zontal differentiation in export markets," Working Paper Series 1680, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20141680
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    References listed on IDEAS

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    More about this item

    Keywords

    asymmetric preferences; heterogeneous consumers; heterogeneous firms; monopolistic competition; product differentiation;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure

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