Selection Effects with Heterogeneous Firms

Monika Mrazova () and J. Peter Neary

Journal of the European Economic Association, 2019, vol. 17, issue 4, 1294-1334

Abstract: We characterize how firms select between alternative ways of serving a market. “First-order” selection effects, whether firms enter or not, are extremely robust. “Second-order” ones, how firms serve a market conditional on entry, are much less so: more efficient firms select the entry mode with lower market-access costs if firms’ maximum profits are supermodular in production and market-access costs, but not necessarily otherwise. We derive microfoundations for supermodularity in a range of canonical models. Notable exceptions include horizontal and vertical FDI with “subconvex” demands (i.e., less convex than CES), fixed costs that increase with productivity, and R&D with threshold effects.

Date: 2019
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Citations: View citations in EconPapers (17)

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Related works:
Working Paper: Selection Effects With Heterogeneous Firms (2013)
Working Paper: Selection Effects with Heterogeneous Firms (2012)
Working Paper: Selection effects with heterogeneous firms (2012)
Working Paper: Selection Effects with Heterogeneous Firms (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:oup:jeurec:v:17:y:2019:i:4:p:1294-1334.

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