Monotone Comparative Statics for the Industry Composition

Peter Arendorf Bache () and Anders Laugesen ()
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Peter Arendorf Bache: Department of Economics and Business, Aarhus University, Postal: 8210 Aarhus V, Denmark
Anders Laugesen: Department of Economics and Business, Aarhus University, Postal: 8210 Aarhus V, Denmark

Economics Working Papers from Department of Economics and Business Economics, Aarhus University

Abstract: We let heterogeneous firms face decisions on a number of complementary activities in a monopolistically-competitive industry. The endogenous level of competition and selection regarding entry and exit of firms introduces a wedge between monotone comparative statics (MCS) at the firm level and MCS for the industry composition. The latter phenomenon is defined as first-order stochastic dominance shifts in the equilibrium distributions of all activities across active firms. We provide sufficient conditions for MCS at both levels of analysis and show that we may have either type of MCS without the other. It is therefore possible that firm-level complementarities manifest themselves more clearly at the industry level than at the firm level during comparative statics. This turns out to be the case for a large number of models and shocks considered in the recent trade literature for which we provide strong, novel, and testable predictions.

Keywords: Complementary Activities; Firm Heterogeneity; Monotone Comparative Statics; Markups; Firm-Size Distribution; International Trade (search for similar items in EconPapers)
JEL-codes: D21 F12 F61 L22 (search for similar items in EconPapers)
Pages: 40
Date: 2013-05-15
New Economics Papers: this item is included in nep-bec, nep-com and nep-ind
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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