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We examine a two-stage duopoly game in which firms advertise their existence to consumers in stage 1 and compete in prices in stage 2. Whenever the advertising technology generates positive overlap in customer bases, the equilibrium for the stage-1 game is asymmetric in that one firm chooses to remain small in comparison to its competitor. For a specific random advertising technology, we show that one firm will always be half as large as the other. No pure-strategy price equilibrium exists in the stage-2 game, and as long as there is some overlap in customer bases, the mixed-strategy price equilibrium does not converge to the Bertrand equilibrium.

This study replicates Ahn, Khandelwal, and Wei's (2011) model of intermediary trade. The study produces two main results. First, the authors are able to reproduce empirical evidence for AKW's three main predictions for Chinese exports. This is impressive because much of the data for their replication are independently sourced. However, when the authors subject their model to additional tests, they find that the evidence is not robust. Using more recently available data to test AKW´s first prediction, the authors estimate coefficients that are wrong-signed and significant. When they re-analyze the evidence supporting the second and third predictions, they find that the full sample results mask significant heterogeneity across Chinese regions. In many cases, key coefficients are insignificant. In a few cases, they are wrong-signed and significant. Finally, using multiple versions of a key variable measuring the number of required import documents by country, the authors discover that the results are not robust across versions.

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