Defining the geographical level of competition: a taxonomy of industry tradability

Abstract The paper develops a taxonomy of industry tradability to define the geographical level at which competition takes place. First, it creates a novel dataset that combines production and international trade data for both goods and services industries, defined at a detailed (3‐digit) level of industry aggregation for 15 European countries. Then, based on the relative values of domestic sales and international trade flows, it identifies whether each industry is tradable and therefore competes internationally—either globally or within a cross‐country economic bloc—or domestically. Each industry is therefore assigned its relevant geographic market boundaries. The proposed classification of industry tradability can be applied in numerous contexts, ranging from the evaluation of trade policies to the assessment of competition.