Import Competition And Response PDF Download

This dissertation consists of two chapters. The first one is an empirical study in international trade which investigates the effect of an intensified competition on the price and quality of traded goods. The second one is a theoretical study in macroeconomics that incorporates the theory of efficiency wage in a competitivesearch equilibrium with adverse selection.Chapter 1: Competing on Price and Quality: Theory and Evidence from Trade DataImport competition induces firms either to reduce their markup, upgrade their quality, or both. Modern models of international trade typically consider one margin of adjustment to explain the consequences of import competition. However, examining U.S. import data suggests that firms actively respond by adjusting bothquality and markup. This paper develops and calibrates a Ricardian model of trade which incorporates the endogenous response of quality and markup to import competition. Countries are heterogeneous both in physical efficiency and quality capability. Firms engage in a two-dimensional Bertrand competition in whichthey simultaneously choose the price and quality of output. Estimation results indicate that developed countries are more productive both in physical and quality production. Moreover, in response to import competition, developed countries mainly upgrade quality, while developing countries mainly reduce the markup. Ignoring the quality channel would underestimate the gains from trade that the U.S. derives with developed countries and overestimate the gains from trade with developing countries. The counterfactual experiment indicates as the U.S. economy grows, it benefits more from free trade with quality-capable countries than with countries which are less capable.Chapter 2: Efficiency Wage, Competitive Search and Adverse SelectionThis paper investigates the theory of efficiency wage (wage per unit of efficiency) in a competitive search equilibrium with adverse selection. Firms post wages. Workers whose efficiency is private information decide where to apply after observing posted wages. A separating equilibrium is characterized. Contrary to the result derived in Weiss (1980), not only unemployment rises in response to a negative shock (e.g., output price fall), but each unit of efficiency is also rewarded less. Moreover, I extend the model to a general equilibrium setting in which the product market is monopolistically competitive. Comparative statics show that moving toward a more competitive market induces an increase in the efficiency wage and a decrease in the output price. However, while the rise in the relative measure of firms to workers lowers the output price, its effect on the efficiency wage is indeterminate.