Income Differences and Prices of Tradables
AbstractThis paper presents novel evidence of price discrimination, using prices of identical goods in 28 countries. I explain the observed phenomenon via non-homothetic preferences, in a model of trade with product differentiation and firm productivity heterogeneity. The model brings theory and data closer along a key dimension: it generates positively related prices of tradables and income, while preserving exporter behavior and trade flows of existing frameworks. It further captures observations that richer countries buy more per product and consume more diverse bundles. Quantitatively, the model suggests that variable markups account for 80% of the positive price-income relationship across 123 countries.
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Bibliographic InfoPaper provided by University of California at Davis, Department of Economics in its series Working Papers with number 10-15.
Date of creation: Jul 2010
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Find related papers by JEL classification:
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
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