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Abstract
The importance of market scale really affects a set of economic orientations in real world, such as economic structure, trade patterns, competitive behaviours of firms, and decisions of government policies and enterprises, etc. Simultaneously, considering the production efficiency and product quality as the productivity calculation of one firm, our expanded model tries to answer how does the market scale of the world affect the operation and survival of enterprises and how does the asymmetrical market scales derive the changes of firms' exporting decisions. Our article gets the following two results. When the global market expands, we find that those combinations of production efficiency and product quality originally unable to serve the domestic market or be exported are turned to meet domestic or export demand. Next, the effect of the asymmetric scale between two countries’ markets would derive the four areas which describe different export decisions under various production efficiency–product quality combinations. This explains that reasonable combinations of production efficiency and product quality will be the critical point to export.
Highlights
The scale of a country’s market affects its market structure, economies of scale, government policy decisions, trade patterns, firms’ pricing and costs, competitive behaviour, and location selection
Under the assumption of fixed productivity, high productivity may be the result of three scenarios: high production efficiency and high product quality, high production efficiency and low product quality, or low production efficiency and high product quality. For this definition of productivity, under a market scale and monopolistic competition framework, we explore the effects of an increase in the scale of the global market and of asymmetric scale between the national markets
In area 4, for a fixed combination of production efficiency and product quality, home country firms are incapable of exporting to the foreign country, but foreign country firms can export to the home country; the reason that home country firms cannot export is that the scale of the foreign market is small and the average productivity of foreign firms is higher than that of home country firms, meaning that they require higher productivity to export
Summary
The scale of a country’s market affects its market structure, economies of scale, government policy decisions, trade patterns, firms’ pricing and costs, competitive behaviour, and location selection. If we consider the effect of only one variable in our discussion, our results and strategy selections may differ from real-world conditions On this basis, this study attempts to explain the effects of asymmetric market scale or increases in the scale of entire markets on the survivals and operations of firms under conditions of product quality and productivity heterogeneity in addition to topics related to firms’ export productivity and export decision. This study finds that given the asymmetric markets in the two countries, by using a zero-profit curve for exports, where heterogeneous firms in the two countries have different production efficiency–product quality combinations, firms’ export decisions can be divided into four areas on this curve.
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