摘要：

Empirical evidence attributes R&D-driven firm heterogeneity to differences in product scope and quality. This paper incorporates this evidence into a model of a market with heterogeneous firms, where large oligopolistic firms compete with small monopolistic competitors. Large firms leverage their competencies by investing in R&D portfolios, whereas small firms remain single-product producers upon entry. We study how large firms balance product and quality innovation within their R&D efforts and how trade shapes these choices and market outcomes. First, we show that firms in sectors with varying degrees of product differentiation allocate their R&D differently due to varying degrees of cannibalization. Second, bilateral trade shifts large firms’ R&D toward quality, raising markups and encouraging small-firm entry in moderately large markets, but in sufficiently large markets, trade-driven expansion of large firms leads to small-firm exit. Finally, import competition weakens the R&D efforts of large firms, reducing markups and intensifying market competition.