Product Mix and Firm Productivity Responses to Trade Competition

We document how demand shocks in export markets lead French multiproduct exporters to reallocate the mix of products sold in those destinations. In response to positive demand shocks, French firms skew their export sales toward their best-performing products. We develop a theoretical model of multip...

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Bibliographic Details
Published inThe review of economics and statistics Vol. 103; no. 5; pp. 874 - 891
Main Authors Mayer, Thierry, Melitz, Marc J., Ottaviano, Gianmarco I. P.
Format Journal Article
LanguageEnglish
Published One Rogers Street, Cambridge, MA 02142-1209, USA MIT Press 02.12.2021
MIT Press Journals, The
Massachusetts Institute of Technology Press (MIT Press)
Subjects
Companies
Destinations
Economics and Finance
Endogenous
Humanities and Social Sciences
International trade
Markets
Price elasticity
Productivity
Sales
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Summary:We document how demand shocks in export markets lead French multiproduct exporters to reallocate the mix of products sold in those destinations. In response to positive demand shocks, French firms skew their export sales toward their best-performing products. We develop a theoretical model of multiproduct firms and derive the specific demand conditions (with endogenous price elasticities) needed to generate these product-mix reallocations. Under those demand conditions, the increased competition from demand shocks in export markets also induces productivity changes within the firm. We empirically test for this connection between demand shocks and the productivity of multiproduct firms. We find that this connection is economically substantial.
Bibliography:December, 2021
ISSN:0034-6535
1530-9142
DOI:10.1162/rest_a_00952