Working Paper: CEPR ID: DP2449
Authors: Sergei Guriev; Dmitry Kvassov
Abstract: Unprecedented growth of barter is a striking phenomenon of Russia’s transition. The explanations of barter include tight monetary policy, tax evasion and poor financial inter-mediation. We show that the market power may also be important. We build a model of imperfect competition in which firms use barter for price discrimination. The model predicts a positive relationship between the concentration of market power and the share of barter in sales. We also show that barter disappears at a certain level of competition. The model has multiple stable equilibria which may explain persistence of barter. Using a unique data set on barter transactions in Russia, we show that empirical evidence is consistent with the model’s predictions.
Keywords: barter; price discrimination; oligopoly
JEL Codes: D43; L13; P42
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Market concentration (L11) | Share of barter in sales (F19) |
| Barter equilibrium disappears (D59) | Transition to no-barrier equilibrium (D50) |
| Liquidity shock (E44) | High barter state (F19) |
| Government intervention (O25) | Reduce barter transactions (E42) |