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Intransparent Markets and Intra-Industry Trade

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  • Christian Gormsen

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)

Abstract

Buyers are typically unaware of the full set of offers when making a purchase. This paper examines how international trade interacts with this problem of market intransparency. Sellers must communicate their offers through costly advertising, but cannot reach all buyers. Consequently, no market clearing price exists, and sellers randomize over an equilibrium price distribution. Sellers will wish to spread advertisement costs across markets, leading to international trade, which would not take place under complete information. Buyers then receive more offers, leading to lower prices and buyer surplus gains. Sellers in the model are identical, but appear heterogeneous due to their price randomization. If sellers differ slightly, these differences will be greatly magnified. Finally, the model rationalizes very infrequent exporters as firms offering disadvantageous, but profitable, deals to foreign buyers.

Suggested Citation

  • Christian Gormsen, 2012. "Intransparent Markets and Intra-Industry Trade," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00678264, HAL.
    • Handle: RePEc:hal:cesptp:halshs-00678264
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00678264
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    References listed on IDEAS

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    Cited by:

    1. Nguyen, Daniel X., 2012. "Demand uncertainty: Exporting delays and exporting failures," Journal of International Economics, Elsevier, vol. 86(2), pages 336-344.

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    More about this item

    Keywords

    Advertising; intra-industry trade; firm heterogeneity; price dispersion.; Publicité; commerce intra-branche; firmes hétérogènes; dispersion de prix.;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • M37 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Advertising

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