Heterogeneous Firms and Asymmetric Product Differentiation

We introduce asymmetric product differentiation in a model characterized by a linear demand system, endogenous markups and heterogeneous firms (as in Melitz‐Ottaviano [2008]). In particular, a single industry is divided into a number of market segments, each characterized by a different degree of horizontal product differentiation. Such a setup allows us to explain, within a single theoretical framework, the non‐linear relations between firm...