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Trade and Variety in a Model of Endogenous Product Differentiation

Oliver Lorz () and Matthias Wrede ()

No 200902, MAGKS Papers on Economics from Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung)

Abstract: This paper sets up a model of endogenous product differentiation to analyze the variety effects of international trade. In our model multi-product firms decide not only about the number of varieties they supply but also about the degree of horizontal differentiation between these varieties. Firms can raise the degree of differentiation by investing variety-specific fixed costs. In this setting, we analyze how trade integration, i.e. an increase in market size, influences the number of firms in the market, the number of product varieties supplied by each firm, and the degree of differentiation.

Keywords: Product differentiation; multi-product firms; international trade. (search for similar items in EconPapers)
JEL-codes: D43 F12 L25 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com and nep-int
Date: 2009
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http://www.uni-marburg.de/fb02/makro/forschung/magkspapers/02-2009_lorz.pdf First version, 2009 (application/pdf)

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