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Selection effects with heterogeneous firms

Mrázová, Monika and Neary, J. Peter (2012) Selection effects with heterogeneous firms. CEP Discussion Papers (CEPDP1174). Centre for Economic Performance, London School of Economics and Political Science, London, UK.

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Abstract

We provide a general characterization of which firms will select alternative ways of serving a market. If and only if firms' maximum profits are supermodular in production and marketaccess costs, more efficient firms will select into the activity with lower market-access costs. Our result applies in a range of models and under a variety of assumptions about market structure. We show that supermodularity holds in many cases but not in all. Exceptions include FDI (both horizontal and vertical) when demands are “sub-convex” (i.e., less convex than CES), fixed costs that vary with access mode, and R&D with threshold effects.

Item Type: Monograph (Discussion Paper)
Official URL: http://cep.lse.ac.uk/_new/publications/series.asp?...
Additional Information: © 2012 The Authors
Divisions: Centre for Economic Performance
Subjects: H Social Sciences > HF Commerce
JEL classification: F - International Economics > F1 - Trade > F12 - Models of Trade with Imperfect Competition and Scale Economies
F - International Economics > F1 - Trade > F15 - Economic Integration
F - International Economics > F2 - International Factor Movements and International Business > F23 - Multinational Firms; International Business
Sets: Collections > Economists Online
Research centres and groups > Centre for Economic Performance (CEP)
Date Deposited: 07 Aug 2013 15:15
Last Modified: 14 Feb 2020 00:49
URI: http://eprints.lse.ac.uk/id/eprint/51521

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