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Intra‐industry Adjustment to Import Competition: Theory and Application to the German Clothing Industry
Author(s) -
Raff Horst,
Wagner Joachim
Publication year - 2010
Publication title -
the world economy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.594
H-Index - 68
eISSN - 1467-9701
pISSN - 0378-5920
DOI - 10.1111/j.1467-9701.2010.01310.x
Subject(s) - competition (biology) , german , economics , oligopoly , productivity , industrial organization , short run , clothing industry , clothing , microeconomics , macroeconomics , ecology , archaeology , cournot competition , biology , history
This paper uses an oligopoly model with heterogeneous firms to examine how an industry adjusts to rising import competition. The model predicts that in the short run the least efficient firms in the industry become inactive, surviving firms face a fall in output, mark‐ups and profits, and average industry productivity increases due to a selection effect. These pro‐competitive effects of import penetration on the domestic industry disappear in the long run. The predictions for the short run are confirmed in an empirical study of the German clothing industry.