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Teams of rivals: endogenous markups in a Ricardian world

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  • Beatriz de Blas
  • Katheryn Niles Russ

Abstract

We show that an ostensibly disparate set of stylized facts regarding firm pricing behavior can arise in a Ricardian model with Bertrand competition. Generalizing the Bernard, Eaton, Jenson, and Kortum (2003) model allows firms' markups over marginal cost to fall under trade liberalization, but increase with FDI, matching empirical studies in international trade. We are able to mesh this dichotomy with the existence of pricing-to-market and imperfect pass-through, as well as to capture stylized facts regarding the frequency and synchronization of price adjustment across markets. The result is a well specified distribution for markups that previously could only be seen numerically and a way to quantify endogenous pricing rigidities emerging from a market structure governed by fierce competition among rivals.

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File URL: http://www.dallasfed.org/assets/documents/institute/wpapers/2010/0067.pdf
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Bibliographic Info

Paper provided by Federal Reserve Bank of Dallas in its series Globalization and Monetary Policy Institute Working Paper with number 67.

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Date of creation: 2010
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Handle: RePEc:fip:feddgw:67

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Keywords: Macroeconomics ; International trade ; Pricing;

References

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  1. Ina Simonovska & Michael E. Waugh, 2011. "The Elasticity of Trade: Estimates and Evidence," CESifo Working Paper Series 3356, CESifo Group Munich.
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  17. repec:cge:warwcg:13 is not listed on IDEAS
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Cited by:
  1. Bulent Unel & Elias Dinopoulos, . "A Simple Model of Quality Heterogeneity and International Trade," Departmental Working Papers 2009-04, Department of Economics, Louisiana State University.
  2. Chris Edmond & Virgiliu Midrigan & Daniel Yi Xu, 2012. "Competition, Markups, and the Gains from International Trade," NBER Working Papers 18041, National Bureau of Economic Research, Inc.
  3. Costinot, Arnaud & Rodriguez-Clare, Andres, 2013. "Trade Theory with Numbers: Quantifying the Consequences of Globalization," CEPR Discussion Papers 9398, C.E.P.R. Discussion Papers.

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