Productivity differs across individual, monopolistically competitive firms in each country. Firms face
some initial uncertainty concerning their future productivity when making an irreversible investment
to enter the domestic market. In addition to the sunken entry cost, firms face both fixed and per-unit
export costs. Only a subset of relatively more productive firms export, while the remaining, less productive
firms only serve their domestic market. This microeconomic structure endogenously determines the
extent of the traded sector and the composition of consumption baskets in both countries. Exogenous
shocks to aggregate productivity, sunken entry costs, and trade costs induce firms to enter and exit both
their domestic and export markets, thus altering the composition of consumption baskets across countries
over time1. The microeconomic features have important consequences for macroeconomic variables.
Macroeconomic dynamics, in turn, feed back into firm level......

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Title: Understanding Competitors And Competition
Approximate Word Count: 333
Approximate Pages: 2 (250 words per double-spaced page)

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