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Competition , Markups, and the Gains from

Author

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  • Chris Edmond
  • Virgiliu Midrigan
  • Daniel Yi Xu

Abstract

We study the pro-competitive gains from international trade in a quantitative model with endogenously variable markups. We find that trade can significantly reduce markup distortions if two conditions are satisfied: (i) there is extensive misallocation and (ii) opening to trade exposes hitherto dominant producers to greater competitive pressure. We measure the extent to which these two conditions are satisfied in Taiwanese producer-level data. Versions of our model consistent with the Taiwanese data predict that opening up to trade strongly increases competition and reduces markup distortions by up to one-third, thus significantly reducing productivity losses due to misallocation.

Suggested Citation

  • Chris Edmond & Virgiliu Midrigan & Daniel Yi Xu, 2011. "Competition , Markups, and the Gains from," Department of Economics - Working Papers Series 1183, The University of Melbourne, revised 2014.
    • Handle: RePEc:mlb:wpaper:1183
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    References listed on IDEAS

    as
    1. Andrew Atkeson & Ariel Burstein, 2008. "Pricing-to-Market, Trade Costs, and International Relative Prices," American Economic Review, American Economic Association, vol. 98(5), pages 1998-2031, December.
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    More about this item

    Keywords

    misallocation; markup dispersion; head-to-head competition;
    All these keywords.

    JEL classification:

    • F1 - International Economics - - Trade
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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