Working Paper: NBER ID: w26246
Authors: Francois Fontaine; Julien Martin; Isabelle Mejean
Abstract: We study the cross-sectional dispersion of prices paid by EMU importers for French products. We document a significant level of price dispersion both within product categories across exporters, and within exporters across buyers. This latter source of price discrepancies, sellers' price discrimination across buyers, is indicative of deviations from the law-of-one price. Price discrimination (i) is substantial within the EU, within the euro area, and within EMU countries; (ii) has not decreased over the last two decades; (iii) is more prevalent among the largest firms and for more differentiated products; (iv) is lower among retailers and wholesalers; (v) is also observed within almost perfectly homogenous product categories, which suggests that a non-negligible share of price discrimination is triggered by heterogeneous markups rather than quality or composition effects. We then estimate a rich statistical decomposition of the variance of prices to shed light on exporters' pricing strategies.
Keywords: Price Discrimination; EMU; Exporters; Market Integration
JEL Codes: F1; F14; F4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Larger firms exhibit higher levels of price discrimination (L11) | Market power of these firms (L11) |
| Price discrimination exists among nearly homogeneous products (D49) | Heterogeneous markups are a significant driver of price discrepancies (F12) |
| Exporters adjust their pricing strategies based on buyer characteristics (F14) | Different markups for different buyers (D49) |
| Price discrimination is substantial within the EU, euro area, and EMU countries (F36) | Exporters set different prices for the same product across different buyers (F14) |
| Price discrimination has not decreased over the last two decades (L11) | Market conditions continue to allow for such practices (L42) |