Advanced Search
MyIDEAS: Login to save this paper or follow this series

Intransparent Markets and Intra-Industry Trade

Contents:

Author Info

  • Christian Gormsen

    ()
    (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris)

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.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://halshs.archives-ouvertes.fr/docs/00/67/82/64/PDF/12017.pdf
Download Restriction: no

Bibliographic Info

Paper provided by HAL in its series Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) with number halshs-00678264.

as in new window
Length:
Date of creation: Mar 2012
Date of revision:
Handle: RePEc:hal:cesptp:halshs-00678264

Note: View the original document on HAL open archive server: http://halshs.archives-ouvertes.fr/halshs-00678264
Contact details of provider:
Web page: http://hal.archives-ouvertes.fr/

Related research

Keywords: Advertising; intra-industry trade; firm heterogeneity; price dispersion.;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Michael R. Baye & John Morgan & Patrick Scholten, 2006. "Information, Search, and Price Dispersion," Working Papers, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy 2006-11, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
  2. Marc J. Melitz & Gianmarco I.P. Ottaviano, 2005. "Market Size, Trade, and Productivity," Development Working Papers 201, Centro Studi Luca d\'Agliano, University of Milano.
  3. James E. Anderson & Eric van Wincoop, 2004. "Trade Costs," NBER Working Papers 10480, National Bureau of Economic Research, Inc.
  4. Rauch, James E., 1999. "Networks versus markets in international trade," Journal of International Economics, Elsevier, Elsevier, vol. 48(1), pages 7-35, June.
  5. Esteban Rossi-Hansberg & Pol Antras & Luis Garicano, 2005. "Offshoring in a Knowledge Economy," 2005 Meeting Papers, Society for Economic Dynamics 196, Society for Economic Dynamics.
  6. Pil Choi, J., 1997. "Brand Extension as Informational Leverage," ISER Discussion Paper, Institute of Social and Economic Research, Osaka University 0451, Institute of Social and Economic Research, Osaka University.
  7. Gene M. Grossman & Esteban Rossi-Hansberg, 2006. "Trading Tasks: A Simple Theory of Offshoring," NBER Working Papers 12721, National Bureau of Economic Research, Inc.
  8. James A. Brander & Paul Krugman, 1983. "A 'Reciprocal Dumping' Model of International Trade," NBER Working Papers 1194, National Bureau of Economic Research, Inc.
  9. J.Peter Neary, 2003. "Globalisation and Market Structure," DNB Staff Reports (discontinued), Netherlands Central Bank 100, Netherlands Central Bank.
  10. Eaton, Jonathan & Eslava, Marcela & Kugler, Maurice & Tybout, James, 2007. "Export Dynamics in Colombia: Firm-Level Evidence," Working Paper Series, Harvard University, John F. Kennedy School of Government rwp07-050, Harvard University, John F. Kennedy School of Government.
  11. Costas Arkolakis, 2010. "Market Penetration Costs and the New Consumers Margin in International Trade," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 118(6), pages 1151 - 1199.
  12. Roc Armenter & Miklós Koren, 2009. "Economies of Scale and the Size of Exporters," CeFiG Working Papers, Center for Firms in the Global Economy 7, Center for Firms in the Global Economy, revised 12 Mar 2009.
  13. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, Econometric Society, vol. 71(6), pages 1695-1725, November.
  14. Jacques Melitz, 2003. "Language and Foreign Trade," Working Papers, Centre de Recherche en Economie et Statistique 2003-26, Centre de Recherche en Economie et Statistique.
  15. Butters, Gerard R, 1977. "Equilibrium Distributions of Sales and Advertising Prices," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 44(3), pages 465-91, October.
  16. James E. Rauch & Vitor Trindade, 2002. "Ethnic Chinese Networks In International Trade," The Review of Economics and Statistics, MIT Press, vol. 84(1), pages 116-130, February.
  17. Andrew B. Bernard & Jonathan Eaton & J. Bradford Jensen & Samuel Kortum, 2000. "Plants and Productivity in International Trade," Boston University - Institute for Economic Development, Boston University, Institute for Economic Development 105, Boston University, Institute for Economic Development.
  18. Richard Portes & Helene Rey, 2000. "The determinants of cross-border equity flows," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 20203, London School of Economics and Political Science, LSE Library.
  19. Julien Martin, 2010. "Markups, Quality and Transport Costs," Working Papers, Centre de Recherche en Economie et Statistique 2010-17, Centre de Recherche en Economie et Statistique.
  20. Karen Clay & Ramayya Krishnan & Eric Wolff, 2001. "Prices and Price Dispersion on the Web: Evidence from the Online Book Industry," NBER Working Papers 8271, National Bureau of Economic Research, Inc.
  21. Nelson, Philip, 1974. "Advertising as Information," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 82(4), pages 729-54, July/Aug..
  22. Robert C. Feenstra & Matthew D. Shapiro, 2003. "Scanner Data and Price Indexes," NBER Books, National Bureau of Economic Research, Inc, number feen03-1.
  23. Nelson, Phillip, 1970. "Information and Consumer Behavior," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 78(2), pages 311-29, March-Apr.
  24. repec:hrv:faseco:4784031 is not listed on IDEAS
  25. George J. Stigler, 1961. "The Economics of Information," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 69, pages 213.
  26. Paul R. Milgrom & John Roberts, 1984. "Price and Advertising Signals of Product Quality," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 709, Cowles Foundation for Research in Economics, Yale University.
  27. Robert C. Feenstra & Matthew D. Shapiro, 2003. "Introduction to "Scanner Data and Price Indexes"," NBER Chapters, in: Scanner Data and Price Indexes, pages 1-14 National Bureau of Economic Research, Inc.
  28. Ernest Aksen & Jacek Cukrowski, 2001. "Perfect Competition and Intra-Industry Trade," CASE-CEU Working Papers 0040, CASE-Center for Social and Economic Research.
  29. Burdett, Kenneth & Judd, Kenneth L, 1983. "Equilibrium Price Dispersion," Econometrica, Econometric Society, Econometric Society, vol. 51(4), pages 955-69, July.
  30. Jakob R. Munch & Daniel X., 2008. "Decomposing Firm-level Sales Variation," EPRU Working Paper Series, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics 2009-05, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics, revised Jun 2009.
  31. Brander, James A., 1981. "Intra-industry trade in identical commodities," Journal of International Economics, Elsevier, Elsevier, vol. 11(1), pages 1-14, February.
  32. Clay, Karen, et al, 2002. "Retail Strategies on the Web: Price and Non-price Competition in the Online Book Industry," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 50(3), pages 351-67, September.
  33. Pratt, John W & Wise, David A & Zeckhauser, Richard, 1979. "Price Differences in Almost Competitive Markets," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 93(2), pages 189-211, May.
  34. James E. Rauch, 2001. "Business and Social Networks in International Trade," Journal of Economic Literature, American Economic Association, vol. 39(4), pages 1177-1203, December.
  35. James E. Rauch & Vitor Trindade, 2003. "Information, International Substitutability, and Globalization," American Economic Review, American Economic Association, American Economic Association, vol. 93(3), pages 775-791, June.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Daniel X. Nguyen, 2010. "Demand Uncertainty: Exporting Delays and Exporting Failures," Discussion Papers 10-17, University of Copenhagen. Department of Economics.
  2. Nguyen, Daniel X., 2012. "Demand uncertainty: Exporting delays and exporting failures," Journal of International Economics, Elsevier, Elsevier, vol. 86(2), pages 336-344.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:hal:cesptp:halshs-00678264. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (CCSD).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.