Working Papers
Flexibility and Productivity: Towards the Understanding of Firm Heterogeneity. September, 2021 (Revise and Resubmit at International Economic Review) (with Mingzhi Xu).
Online Appendix
This paper studies the heterogeneity in scope and sales across multi-product firms. We document four new stylized facts using Chinese firm-level data to show that the standard single-attribute model of trade, in which firms only differ in productivity, must be augmented with an additional layer of heterogeneity in order to match the facts. Combining the theoretical predictions of a rich framework with the empirical results, we show that to match the evidence, a model requires heterogeneity in flexibility, namely the ability to introduce new varieties in a destination at low costs. We calibrate our model and find suggestive evidence of a trade-off between productivity and flexibility: more productive firms are likely to be less flexible, as they pay higher fixed costs to introduce new varieties. By quantifying the role of firm flexibility on the welfare gains from trade, we show that ignoring firm flexibility causes a large underestimation of the welfare effects of trade.
This paper studies the heterogeneity in scope and sales across multi-product firms. We document four new stylized facts using Chinese firm-level data to show that the standard single-attribute model of trade, in which firms only differ in productivity, must be augmented with an additional layer of heterogeneity in order to match the facts. Combining the theoretical predictions of a rich framework with the empirical results, we show that to match the evidence, a model requires heterogeneity in flexibility, namely the ability to introduce new varieties in a destination at low costs. We calibrate our model and find suggestive evidence of a trade-off between productivity and flexibility: more productive firms are likely to be less flexible, as they pay higher fixed costs to introduce new varieties. By quantifying the role of firm flexibility on the welfare gains from trade, we show that ignoring firm flexibility causes a large underestimation of the welfare effects of trade.
Large Multiproduct Exporters Across Rich and Poor Countries: Theory and Evidence.
August, 2021 (Revise and Resubmit at Journal of Development Economics)
Online Appendix
I study the welfare effects of trade in the presence of large firms producing multiple varieties. Large multiproduct exporters dominate trade flows and their scope decisions have new implications for the welfare gains from trade. Using exporter-level data from 11 source countries, I document two stylized facts for large multiproduct exporters: 1) the product scope increases with the level of development of the destination proxied by per capita income, and 2) as evidence of cannibalization effects, a non-monotone, hump-shaped relationship exists between the product scope and market share of a firm. Guided by the evidence, I build a model in which income and cannibalization effects drive the scope decisions of large firms, and I derive a new formula for the welfare gains from trade. Ignoring income or cannibalization effects causes mismeasurement of the welfare gains. The sign and size of the mismeasurement are highly heterogeneous across countries.
I study the welfare effects of trade in the presence of large firms producing multiple varieties. Large multiproduct exporters dominate trade flows and their scope decisions have new implications for the welfare gains from trade. Using exporter-level data from 11 source countries, I document two stylized facts for large multiproduct exporters: 1) the product scope increases with the level of development of the destination proxied by per capita income, and 2) as evidence of cannibalization effects, a non-monotone, hump-shaped relationship exists between the product scope and market share of a firm. Guided by the evidence, I build a model in which income and cannibalization effects drive the scope decisions of large firms, and I derive a new formula for the welfare gains from trade. Ignoring income or cannibalization effects causes mismeasurement of the welfare gains. The sign and size of the mismeasurement are highly heterogeneous across countries.
Quality Heterogeneity and Misallocation: The Welfare Benefits of Raising your Standards. July, 2021 (Revise and Resubmit at Journal of International Economics) (with Ariel Weinberger)
The Planner's Allocation The CES case Other VES Preferences
The imposition of stricter regulations and product standards often has unequal effects on firms, as small, low-quality firms cannot afford to comply with the new restrictions. Using data from Chile, we find that more restrictive standards are associated with a reallocation of domestic sales from small to large firms, which has allocative efficiency implications. Guided by this evidence, we study the welfare effects of the reallocation brought about by standards in a model with monopolistically competitive, heterogeneous firms, and a general demand system. The standard has an ambiguous effect on welfare. On the one hand, it improves allocative efficiency because low-quality firms over-produce in the market allocation. This market distortion is driven entirely by the presence of variable markups and exists to varying degrees in both homothetic and non-homothetic frameworks. On the other hand, the imposition of the standard forces firms to pay a fixed cost that is welfare reducing. We estimate our model across Chilean industries and find that there are substantial possible welfare gains from moving to the optimal policy.
The imposition of stricter regulations and product standards often has unequal effects on firms, as small, low-quality firms cannot afford to comply with the new restrictions. Using data from Chile, we find that more restrictive standards are associated with a reallocation of domestic sales from small to large firms, which has allocative efficiency implications. Guided by this evidence, we study the welfare effects of the reallocation brought about by standards in a model with monopolistically competitive, heterogeneous firms, and a general demand system. The standard has an ambiguous effect on welfare. On the one hand, it improves allocative efficiency because low-quality firms over-produce in the market allocation. This market distortion is driven entirely by the presence of variable markups and exists to varying degrees in both homothetic and non-homothetic frameworks. On the other hand, the imposition of the standard forces firms to pay a fixed cost that is welfare reducing. We estimate our model across Chilean industries and find that there are substantial possible welfare gains from moving to the optimal policy.
Pricing in Firm-to-Firm Trade. Evidence from a Danish Multinational. June, 2021 (under review) (with Elena Mattana)
Online Appendix
We study pricing decisions in firm-to-firm trade. Using novel detailed transaction-level data from a Danish multinational firm, we find a large degree of price dispersion across countries, customers, and, surprisingly, within the same customer. In fact, we find that transaction-specific characteristics are the most important factors in explaining price variation. The dispersion of prices within a customer relationship can be affected by the firm's price setting strategy. Our unique dataset allows us to examine the consequences of the introduction of price lists of recommended and minimum prices. We find that the prices charged converge towards the recommended price, and that price dispersion within a customer can decline if the price lists reduce the pricing range for the products bought by that customer.
We study pricing decisions in firm-to-firm trade. Using novel detailed transaction-level data from a Danish multinational firm, we find a large degree of price dispersion across countries, customers, and, surprisingly, within the same customer. In fact, we find that transaction-specific characteristics are the most important factors in explaining price variation. The dispersion of prices within a customer relationship can be affected by the firm's price setting strategy. Our unique dataset allows us to examine the consequences of the introduction of price lists of recommended and minimum prices. We find that the prices charged converge towards the recommended price, and that price dispersion within a customer can decline if the price lists reduce the pricing range for the products bought by that customer.
Asymmetric Information, Quality, and Regulations. June, 2021 (Revise and Resubmit at Review of International Economics)
I present a model of international trade that features heterogeneous firms and asymmetric information over the quality of products, which is known to producers but unknown to consumers. The presence of asymmetric information leads to adverse selection whereby high-quality firms exit and only low-quality firms survive. The model shows that adverse selection also affects export participation as only firms with the lowest quality are able to export. For this reason, trade can lead to a reduction in welfare if it causes a too large reduction in the average product quality. I study the effects of two instruments: minimum quality standards, which force out firms with the lowest quality, and quality certifications, which allow firms to signal to consumers that their quality is higher than a certain threshold, upon payment of a fixed cost. Both instruments can improve welfare if the increase in prices associated with the higher-quality goods is small enough. Furthermore, I study how the two instruments interact with countries' openness.
Oligopoly and Oligopsony in International Trade. April, 2021 (under review) (with Vladimir Tyazhelnikov)
We study the effects of international trade on firms' oligopsony power in inputs markets. We build a theoretical model of international trade in which firms are oligopolists in the market for final goods and oligopsonists in the market for inputs. Consistent with evidence from the literature, firms' markups increase in both the extent of oligopsony power and of oligopoly power. Trade liberalization in one market reduces firms' market power in such market, but it has the opposite effect in the other market. In particular, international trade between oligopolists in final goods markets causes oligopsony power to increase. Calibrating our model for the US, we find that the reduction in domestic markups generated by international trade are 15-50\% lower due to the presence of oligopsony power.
Quality Misallocation, Trade, and Regulations. April 2021, CESifo Working Paper No. 9041 (with Ariel Weinberger) (video presentation)
Recent trade agreements have shifted their focus to non-tariff barriers such as regulations and product standards, which have been traditionally treated as pure domestic policies. The imposition of such standards reallocates production from small to large, high quality firms. We model regulations as a fixed cost that any firm selling to an economy must pay, consistent with stylized facts that we present. The fixed cost improves allocative efficiency, by reallocating production towards high-quality firms, who under-produce in the market allocation. Furthermore, the fixed cost generates a positive externality on the rest of the world as it induces entry of high-quality firms, but unilateral regulation lowers the terms of trade of the imposing country. The result justifies international cooperation based on the fact that such cooperation can improve welfare, rather than preventing negative consequences of tariff wars. We estimate our model and apply its gravity formulation to quantify the welfare consequences of imposing the optimal regulation, the extent of the positive externalities across countries, and the effects of cooperation.
Large Firms in Retail Markets: Multiple Products for Heterogeneous Consumers. September 2020 (with Mingzhi Xu and Robert C. Feenstra) (video presentation)
Online Appendix
We study the ability of firms of various sizes to cater to the taste of consumers who differ in their geographic location, store choice, and type or purchase history. Using data on purchases at the household-barcode level from Nielsen, we find that heterogeneity across consumer segments accounts for 39% of the variation in product appeal, which is a key determinant of firm size. Using a model with heterogeneous consumers, we find that consumer heterogeneity increases markups and profits, and such a positive effect is more pronounced for large firms. Furthermore, we find a link between firm size heterogeneity and the strategies firms follow in the presence of heterogeneous consumer segments. While smaller firms cater to the taste of few segments, typically the largest ones, larger firms exploit their wider scope to target a larger number of segments, both large and niche. Our quantitative model rationalizes the difference in strategies with the presence of segment-specific market costs.
We study the ability of firms of various sizes to cater to the taste of consumers who differ in their geographic location, store choice, and type or purchase history. Using data on purchases at the household-barcode level from Nielsen, we find that heterogeneity across consumer segments accounts for 39% of the variation in product appeal, which is a key determinant of firm size. Using a model with heterogeneous consumers, we find that consumer heterogeneity increases markups and profits, and such a positive effect is more pronounced for large firms. Furthermore, we find a link between firm size heterogeneity and the strategies firms follow in the presence of heterogeneous consumer segments. While smaller firms cater to the taste of few segments, typically the largest ones, larger firms exploit their wider scope to target a larger number of segments, both large and niche. Our quantitative model rationalizes the difference in strategies with the presence of segment-specific market costs.
Publications
Monopsonistic Competition, Trade, and the Profit Share. May, 2021, accepted at Scandinavian Journal of Economics
I present an international trade model of monopsonistic competition, in which heterogeneous firms face upward sloping labor supply curves and exploit their monopsony power over the wages of workers. The model combines the advantage of tractability with the important feature that markups and markdowns are increasing with firms' size. The model sheds new light on the effects of trade on the aggregate profit share. In a standard model with a Pareto distribution of firm characteristics, the profit share is constant and independent of trade openness; by augmenting the model with the assumption of monopsonistic competition, trade can increase the profit share under reasonable assumptions for the parameter values. Monopsonistic competition is, thus, a contributing factor to the documented decline in the labor share and rise in corporate profits.
Has the Euro Shrunk the Band? Relative PPP Convergence in a Currency Union. 2021, Scandinavian Journal of Economics, 123(2), 593–620
Online Appendix
I study the effects of entry to the European Monetary Union (EMU) on relative PPP convergence using monthly disaggregated price indexes from 32 European countries from 1999 to 2016. I apply Heckscher's insight that transaction costs create bands of inaction in which price differences are not arbitraged away. I examine the entry of Cyprus, Malta, Slovakia, and Slovenia to the EMU, and estimate the bands of inaction before and after entry using a threshold autoregressive model. I find a positive effect of the EMU on relative PPP convergence: after entry the bands of inaction with EMU members fell by 17%. Cross sectional evidence further confirms the result and supports the theoretical prediction that bands of inaction are related to transaction costs.
I study the effects of entry to the European Monetary Union (EMU) on relative PPP convergence using monthly disaggregated price indexes from 32 European countries from 1999 to 2016. I apply Heckscher's insight that transaction costs create bands of inaction in which price differences are not arbitraged away. I examine the entry of Cyprus, Malta, Slovakia, and Slovenia to the EMU, and estimate the bands of inaction before and after entry using a threshold autoregressive model. I find a positive effect of the EMU on relative PPP convergence: after entry the bands of inaction with EMU members fell by 17%. Cross sectional evidence further confirms the result and supports the theoretical prediction that bands of inaction are related to transaction costs.
Work in Progress
Multiproduct Firms, Market Size, and Competition (with Frederic Warzynski)
Publications - Pre Ph.D.
Exchange Rate Devaluation and Reshuffling of Global Jobs (with F. Sdogati). Journal of Economic Integration, 2013; 28(2):241-268. Awarded the Dae-Yang Prize for best article in 2013.
Other work
Published on ISPI (Italian Institute For International Political Studies)
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Midterm elections: economia in ripresa eppure... October, 2014 (in Italian)
Le chances di Obama appese al filo della ripresa economica October, 2012 (in Italian)
Usa, cercasi stimolo fiscale per una rielezione June, 2012 (in Italian)