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Globalization and Heterogeneity: Evidence from Hollywood

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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.

Suggested Citation

  • Konrad Adler & Simon Fuchs, 2022. "Globalization and Heterogeneity: Evidence from Hollywood," FRB Atlanta Working Paper 2022-14, Federal Reserve Bank of Atlanta.
    • Handle: RePEc:fip:fedawp:95079
    DOI: 10.29338/wp2022-14
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    References listed on IDEAS

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    1. Ana Cecília Fieler, 2011. "Nonhomotheticity and Bilateral Trade: Evidence and a Quantitative Explanation," Econometrica, Econometric Society, vol. 79(4), pages 1069-1101, July.
    2. Manuel Hermosilla & Fernanda Gutiérrez-Navratil & Juan Prieto-Rodríguez, 2018. "Can Emerging Markets Tilt Global Product Design? Impacts of Chinese Colorism on Hollywood Castings," Marketing Science, INFORMS, vol. 37(3), pages 356-381, May.
    3. Fernando Ferreira & Joel Waldfogel, 2013. "Pop Internationalism: Has Half a Century of World Music Trade Displaced Local Culture?," Economic Journal, Royal Economic Society, vol. 123, pages 634-664, June.
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    More about this item

    Keywords

    taste heterogeneity; volatility; gains from trade;
    All these keywords.

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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