Learning, Prices, and Firm Dynamics
This paper documents new facts about the joint evolution of firm performance and prices in international markets and proposes a theory of firm dynamics emphasizing the interaction between learning about demand and quality choice to explain the obse...
| Main Authors: | , , |
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| Format: | Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2016
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2016/05/26363172/learning-prices-firm-dynamics http://hdl.handle.net/10986/24504 |
| Summary: | This paper documents new facts about the
joint evolution of firm performance and prices in
international markets and proposes a theory of firm dynamics
emphasizing the interaction between learning about demand
and quality choice to explain the observed patterns. Using
data from the Portuguese manufacturing sector, the paper
documents that: (1) within narrow product categories, firms
with longer spells of activity in export destinations tend
to ship larger quantities at similar prices, thus obtaining
larger export revenue; (2) older exporters tend to import
more expensive inputs; and (3) revenue growth within
destinations (conditional on initial size) tends to decline
with market experience. The authors develop a model of
endogenous input and output quality choices in a learning
environment that is able to quantitatively account for these
patterns. Counterfactual simulations reveal that minimum
quality standards on exports reduce welfare by lowering
entry in export markets and reallocating resources from old
and large toward young and small firms. |
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