We model the impact of the transfer price rule (a constraint that requires the downstream division of a vertically-integrated firm to earn at least a normal rate of return on investment in the counterfactual case that it pays the same price as a nonintegrated firm for the essential input),...

We extend the Melitz-Ottaviano (2008) model by introducing asymmetric groups of varieties in terms of degree of product differentiation. The introduction of these different market segments in the demand system allows us to structurally derive more complex relations between firm productivity,...