A1 - Silja Baller
TI - Market Size, Trade and Quality: Evidence from French Exporters
IS - 2015-14
T3 - Working Papers
KW - Heterogenous firms
KW - Flexible mark-ups
KW - Market size
KW - Quality
KW - Complementarities
N2 - This paper presents the most direct test to date of the key welfare mechanism put forward by Melitz and Ottaviano (2008): the best firms increase sales disproportionately when competing in larger markets. I test this prediction in a quality context where the best firms produce the highest quality. The empirical analysis is guided by a quality-augmentation of Melitz and Ottaviano (2008). I capture product quality empirically using a unique dataset containing firm-level quality ratings. The results are in line with the key prediction of the model. I also find a strong positive relationship between a proxy for consumer quality preference and demand for quality which is consistent with the theory.
ER -