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  3. American Economic Review
  4. October 2013
  5. Trading Away Wide Brands for Cheap Brands

American Economic Review

ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)

Trading Away Wide Brands for Cheap Brands

  • Swati Dhingra
American Economic Review
vol. 103, no. 6, October 2013
(pp. 2554–84)
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Abstract

Firms face competing needs to expand product variety and reduce production costs. Access to larger markets enables innovation to reduce costs. Although firm scale increases, foreign competition reduces markups. Firms' ability to recapture lost markups depends on the interplay between within-firm competition and across-firm competition. Narrowing product variety eases within-firm competition but lowers market share. I provide a theory detailing the impact of trade policy on product and process innovation. Unbundling innovation provides new insights into welfare gains and innovation policy. Product innovation increases welfare beyond standard gains from trade. The relative returns to innovation policy change with trade liberalization.

Citation

Dhingra, Swati. 2013. "Trading Away Wide Brands for Cheap Brands." American Economic Review, 103 (6): 2554–84. DOI: 10.1257/aer.103.6.2554

Additional Materials

JEL Classification

  • D24 Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
  • F13 Trade Policy; International Trade Organizations
  • O31 Innovation and Invention: Processes and Incentives