Finally, the mechanisms we have proposed so far abstract from any within-firm adjustment across products. As NTMs impose fixed costs per product and firm, in countries with high NTMs multi-product firms may focus on their core product, i.e. the product in which they have the largest market share; this implies that our results could be due to an extensive margin adjustment within firms, across products rather than within sectors, across firms. In Section C.16 of the online appendix we show that our results are not purely driven by multi-product firms’ ability to adjust their export portfolio. First, we show that controlling for the number of products exported by the firm leaves our results unchanged. Second, we show that our results still hold when focusing on a sample of single-product firms where such a channel of adjustment is _de facto_ absent.

# **6.2 Role of import shares**

An alternative way to test the mechanisms underlying our theoretical predictions is to look at market shares. Since we do not have market-share data (which is why we identify market power indirectly through pricing behavior in the first place), we attempt to proxy, albeit very imperfectly, the size of firms through their share of aggregate imports. Import shares are computed over destination _d_ ’s total imports of product _p_ , obtained from the BACI database, with products defined at the 4-digit level, and are evaluated at the beginning of the period.<sup>33</sup> Import shares are poor proxies for true market shares given that variations in the sales of domestic firms, which are key for the measurement of rent-shifting effects, are not observed. We try to go around the problem by instrumenting import shares with tariffs and NTMs. That is, our postulate is that the variation of import shares explained by the variation of tariffs and NTMs has something to do with the effect of trade policy on market structure.

This exercise has its limitations. First, we cannot directly instrument a firm’s import share with trade-policy instruments because it is absorbed by firm-destination-product fixed effects— only the interaction with exchange rates can be instrumented. And second, if tariffs and quotas were affecting home-currency producer prices through channels other than market power, they would not be valid instruments; however, this is unlikely given that our prices are demeaned in all key dimensions through fixed effects (for instance, large-country tariff effects on world prices would be washed away by demeaning across destinations). For these reasons, we consider this exercise as a further robustness check on our claim that changes in the pricing behavior of exporters reflect the effect of destination trade policy on market structure.

The results are reported in Table 8. In columns (1) and (4) we first report the results of our baseline specification (equation (3)) where we include an interaction term between the real exchange rate and the firm’s average import share in destination-product cell _d, p_ , defined as before. The coefficient on the interaction term between import shares and the real exchange rate is positive and statistically significant at the 1 percent level in column (1), a result consistent with Amiti _et al._ (2014). However the result does not survive the inclusion of _fpt_ fixed effects in column (4). As average import shares are however potentially endogenous (influenced by prices and omitted variables), we instrument their interaction with exchange rate by interaction terms between the exchange rate and our two trade policy measures. We expect firms with larger import shares due to low tariffs or high-impact NTMs to adjust more their prices in response to 33 See http://www.cepii.fr/CEPII/en/bdd ~~m~~ odele/presentation.asp?id=1.

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