How do Trade Restrictions Affect Market Diversity?

This paper examines the impact of safeguard import tariffs on market diversity in Ecuador from 2015 to 2017. Using firm-level data, we estimate the effects of tariffs on revenue and market shares in the Manufacturing and Wholesale & Retail (W&R) sectors with a Quantile Treatment Effect on the Treated (QTT) estimator. We also assess firm exit probabilities and pass-through effects on prices through a difference-in-differences approach. By linking firm-level QTT estimates to industry-level diversity measures, we construct counterfactual revenue distributions to quantify the effect on market concentration. We find that tariffs disproportionately reduced revenue and market shares for smaller firms, significantly increasing exit rates and reducing market diversity, with stronger effects in W&R. While tariffs did not generate broad inflationary pressures, they induced short-term pass-through effects that further strained smaller firms. These sector-specific price responses reinforced market consolidation, accelerating the decline in market diversity.