DP9584 The Buyer Margins of Firms' Exports

Author(s): Jerónimo Carballo, Gianmarco Ottaviano, Christian Volpe Martincus
Publication Date: August 2013
Keyword(s): Buyer Margins, Competition, Market Segmentation, Markups
JEL(s): F12
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=9584

We use highly disaggregated firm-level export data from Costa Rica, Ecuador, and Uruguay over the period 2005-2008 to provide a precise characterization of firms' export margins, across products, destination countries, and crucially customers. We show that a firm's number of buyers and the distribution of sales across them systematically vary with the characteristics of its destination markets. While most firms serve only very few buyers abroad, the number of buyers and the skewness of sales across them increases with the size and the accessibility of destinations. We develop a simple model of selection with heterogeneous buyers and sellers consistent with these findings in which tougher competition induces a better alignment between consumers' ideal variants and firms' core competencies. This generates an additional channel through which tougher competition leads to higher productivity and higher welfare and hints at an additional source of gains from trade as long as freer trade fosters competition.