Superstar Exporters: An Empirical Investigation of Strategic Interactions in Danish Export Markets

Abstract

In many countries, exports are highly concentrated among a few superstar' firms. We estimate the export decisions of superstar firms as the result of a complete information, simultaneous, discrete choice, static entry game. We employ a dataset on the universe of Danish trade transactions by firm, product and destination. We also obtain detailed information on applied, preferential tariff protection from the MAcMap-HS6 database. We find evidence of strong negative competitive effects of entry: in the absence of strategic competitive effects, firms would be 53.2 percentage points more likely to export to a given market. Next, we run two counterfactual exercises. We show that failing to account for the strategic interaction among superstar exporters leads to: \emph{(i)} overstating the probability that firms would start exporting to a market following tariff elimination by a factor of two; and, \emph{(ii)} overstating the probability that firms would stop exporting to a market if tariffs were imposed by a factor of more than five.