Abstract
AbstractThis chapter provides a theoretical and empirical analysis of the effects of market competition and market expansion on firms product line decisions. The theoretical model explicitly incorporates cost of management. Firms are heterogeneous in terms of managerial efficiency. We use import tariff cut as a proxy for increased market competition and export tariff reduction as a proxy for market expansion. The theoretical analysis predicts that the home country is tariff cut reduces all home firm’s export product line, whereas in response to the foreign country is tariff cut, firms with high (low) managerial efficiency expand (reduce) export product lines. These predictions are supported by our empirical analysis based on data on Chinese firms from 2000 to 2006.
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