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Understanding Markups in the Open Economy under Bertrand Competition

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  • Beatriz de Blas
  • Katheryn Russ

Abstract

The purpose of this paper is to understand the effects of endogenous markups and trade costs on the pricing behavior of exporters when firms are heterogeneous in productivity. Using new analytical distributions for markups under Bertrand competition, we uncover Ricardian patterns of export pricing that generate higher markups and export price volatility when industrialized countries sell to developing countries. These Ricardian patterns dissipate when developing countries move from bilateral to multilateral trade liberalization. The results arise from a form of price rigidity for exports that arises endogenously due to cut-throat competition, even though prices are otherwise perfectly flexible.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 16587.

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Date of creation: Dec 2010
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Handle: RePEc:nbr:nberwo:16587

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Cited by:
  1. Benjamin R. Mandel, 2013. "Chinese exports and U.S. import prices," Staff Reports 591, Federal Reserve Bank of New York.
  2. Linda Goldberg & Cédric Tille, 2013. "A bargaining theory of trade invoicing and pricing," Staff Reports 611, Federal Reserve Bank of New York.
  3. Logan Lewis, 2013. "Menu Costs, Trade Flows, and Exchange Rate Volatility," 2013 Meeting Papers 313, Society for Economic Dynamics.
  4. Franziska Bremus, 2011. "Financial Integration and Macroeconomic Stability: What Role for Large Banks?," Discussion Papers of DIW Berlin 1178, DIW Berlin, German Institute for Economic Research.
  5. Bremus, Franziska & Buch, Claudia M. & Russ, Katheryn N. & Schnitzer, Monika, 2013. "Big Banks and Macroeconomic Outcomes: Theory and Cross-Country Evidence of Granularity," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 80048, Verein für Socialpolitik / German Economic Association.

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