Multi-product Firms and Product Quality Expansion

Van Pham () and Alan Woodland
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Van Pham: School of Economics, UNSW Business School

No 2020-05, Discussion Papers from School of Economics, The University of New South Wales

Abstract: This paper develops and analyzes a model of international trade comprising multiproduct firms that can produce a range of product varieties distinguished by quality. First, it analyses the within-firm distribution of product quality and argues that firms’ export decisions are sensitive to their sizes and their product quality level. Specifically, a firm successfully exports both its high-end products and low-end products. Also, the sales of its top-end products relative to sales of its lower-end products is sensitive to the extent to which effective labour costs rise with quality. Second, the paper explores the heterogeneous effects of trade liberalization on multi-product firm behaviour and quality range choices. Under trade liberalization, small domestic firms experience a shrinkage of their product quality range, while even the new small-sized exporters narrow their product quality range to focus on an export variety. In contrast, existing exporters (large firms) can compete on both price and quality under trade liberalization by expanding their export product range toward both the low-end and high-end varieties. There is a greater expansion toward the lower-end varieties relative to the higher-end varieties under trade liberalization, this relative expansion decreasing as the variable trade cost decreases.

Keywords: Firm heterogeneity; Multiproduct firms; Quality range of varieties; Exports; Productivity (search for similar items in EconPapers)
Pages: 54 pages
Date: 2020-03
New Economics Papers: this item is included in nep-ind and nep-int
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Working Paper: Multi-product firms and product quality expansion (2020)
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