| This dissertation features monopolistic competition models of firms, accounting for heterogeneous exporting/investment decisions, and heterogeneous scope expansion strategies.;The second chapter considers how firms respond (differently) to decreasing trade costs. We provide a theoretical justification to the Eastman and Stykolt hypothesis (1967), which suggests that firms expand in scale but contract in scope after trade liberalization in Canada. With identical costs, trade liberalization leads to rationalization in firms' product range but expansion in exports, while firm-level selection and scale adjustment is absent. With heterogeneous costs, exporting firms expand export range but reduce total number of products due to declining trade cost. Fewer firms survive, while a higher proportion of them serve foreign market. Exporting firms' average scale increases.;The final chapter, alternatively, allows firms to exercise market power across multiple products. Therefore markups are endogenous. Firms choose their optimal product scope by balancing the net profits from a new variety against the costs of "cannibalizing" their own sales. With identical costs, opening trade leads to fewer firms surviving but more varieties produced by each firms. With heterogeneous costs, the number of firms surviving in equilibrium is quite insensitive to the market size. When trade is opened, more firms initially enter, but the larger market size reduces the cannibalization effect and expands the optimal scope of products. As a result, the less efficient firms exit, and the larger market is accommodated by more efficient firms that produce more varieties per firm on average.;Firms, after knowing productivity, decide whether to export, and whether to form joint ventures with foreign companies. The decision affects the number of products they introduces. The most productive firms engage in foreign partnership and export. The least productive firms do neither. In between are domestic-owned exporting firms and foreign-owned non-exporting firms. The former display higher efficiency if exporting incurs large upfront costs, and vice versa. More productive firms introduce more varieties. Ceteris paribus, foreign participation and exporting both promote variety expansion. Using microdata for Chinese enterprises, we observe sorting and selection patterns consistent with the model. |
