Market size, competition, and the product mix of exporters

Thierry Mayer (1) , Marc Melitz (2) , Gianmarco Ottaviano (3)

1 ECON - Département d'économie (Sciences Po)
2 Department of Economics, Harvard University
3 UNIBO - Alma Mater Studiorum Università di Bologna = University of Bologna

We build a theoretical model of multi-product firms that highlights how market size and ge- ography (the market sizes of and bilateral economic distances to trading partners) affect both a firm's exported product range and its exported product mix across market destinations (the dis- tribution of sales across products for a given product range). We show how tougher competition in an export market induces a firm to skew its export sales towards its best performing products. We find very strong confirmation of this competitive effect for French exporters across export market destinations. Trade models based on exogenous markups cannot explain this strong sig- nificant link between destination market characteristics and the within-firm skewness of export sales (after controlling for bilateral trade costs). Theoretically, this within firm change in prod- uct mix driven by the trading environment has important repercussions on firm productivity and how it responds to changes in that trading environment.

Domaines: Economies et finances

Thierry Mayer, Marc Melitz, Gianmarco Ottaviano. Market size, competition, and the product mix of exporters. 2011. ⟨hal-03473795⟩