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International trade and technological competition in markets with dynamic increasing returns

Author

Listed:
  • Luca Fontanelli
  • Mattia Guerini
  • Mauro Napoletano

    (OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po)

Abstract
We build a simple dynamic model to study the effects of technological learning, market selection and international competition in the determination of export flows and market shares. The model features two countries populated by firms with heterogeneous productivity levels and sales. Market selection in each country is driven by a finite pairwise Pólya urn process. We show that market selection leads either to a national or to an international monopoly in presence of a static distribution of firm productivity levels. We then incorporate firm learning and entry-exit in the model and we show that the market structure does not converge to a monopoly. In addition, we show that the extended model is able to jointly reproduce a wide ensemble of stylized facts concerning intra-industry trade, industry and firm dynamics.

Suggested Citation

  • Luca Fontanelli & Mattia Guerini & Mauro Napoletano, 2021. "International trade and technological competition in markets with dynamic increasing returns," Working Papers hal-03370650, HAL.
    • Handle: RePEc:hal:wpaper:hal-03370650
    Note: View the original document on HAL open archive server: https://sciencespo.hal.science/hal-03370650
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    2. Joseph Hickey, 2023. "Simple model of market share dynamics based on clients' firm-switching decisions," Papers 2304.08727, arXiv.org, revised Nov 2023.
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    10. Giovanni Dosi & Sébastien Lechevalier & Angelo Secchi, 2010. "Interfirm heterogeneity: nature, sources and consequences for industrial dynamics. An introduction," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00642680, HAL.
    11. Marco Grazzi, 2009. "Trade and Profitability: Is there an export premium? Evidence from Italian manufacturing firms," LEM Papers Series 2009/16, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
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    More about this item

    Keywords

    firm dynamics; market selection; Pólya urn; international trade; industrial dynamics;
    All these keywords.

    JEL classification:

    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • F1 - International Economics - - Trade
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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