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Jacques-François Thisse

23 May 2014
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 Code
D43 : Microeconomics→Market Structure and Pricing→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: Industrial Structure and Structural Change, Industrial Price Indices
Competitiveness Research Network