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Understanding International Prices: Customers as Capital

  • Lukasz A. Drozd
  • Jaromir B. Nosal

The article develops a new theory of pricing to market driven by dynamic frictions of building market shares. Our key innovation is a capital theoretic model of marketing in which relations with customers are valuable. We discipline the introduced friction using data on differences between short-run and long-run price elasticity of international trade flows. We show that the model accounts for several pricing "puzzles" of international macroeconomics. (JEL E13, F14, F31, F41, F44, M31)

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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 102 (2012)
Issue (Month): 1 (February)
Pages: 364-95

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Handle: RePEc:aea:aecrev:v:102:y:2012:i:1:p:364-95
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