Working Paper: NBER ID: w16587
Authors: Beatriz de Blas; Katheryn Russ
Abstract: The purpose of this paper is to understand the effects of endogenous markups and trade costs on the pricing behavior of exporters when firms are heterogeneous in productivity. Using new analytical distributions for markups under Bertrand competition, we uncover Ricardian patterns of export pricing that generate higher markups and export price volatility when industrialized countries sell to developing countries. These Ricardian patterns dissipate when developing countries move from bilateral to multilateral trade liberalization. The results arise from a form of price rigidity for exports that arises endogenously due to cut-throat competition, even though prices are otherwise perfectly flexible.
Keywords: No keywords provided
JEL Codes: F0; F1; F4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Trade liberalization (F13) | pro-competitive effect (L49) |
| pro-competitive effect (L49) | ability of exporters to pass through shocks to marginal costs into prices (F16) |
| bilateral trade liberalization (F13) | markups (D43) |
| multilateral trade liberalization (F13) | markups (D43) |
| multilateral trade liberalization (F13) | price volatility (G13) |
| trade costs (F19) | distribution of markups (D39) |
| finite number of rivals (C72) | competitive environment that constrains markups (L13) |