This paper decomposes within-industry differences in bilateral trade flows across countries into the contributions of (observed) trade costs and (unobserved) product appeal, production costs, and markups. To obtain empirical measures for unobserved characteristics, I estimate the structural parameters of a model of international trade that generalizes the benchmark CES monopolistic competition framework to allow for endogenous markups and variable marginal production costs. The empirical results show that, together, differences in product appeal and production costs account for about 95 percent of the cross-sectional variation in trade flows. The results also provide empirical support to the extended model: the largest varieties have estimated markups up to 12 percent higher than the industry average and the estimated output elasticities suggest supply curves are not perfectly elastic.