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Pricing-to-Market: Price Discrimination or Product Differentiation?

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  • Nathalie Lavoie
  • Qihong Liu

Abstract

We employ a vertical differentiation model to examine the potential bias in pricing-to-market results when using export unit values aggregating differentiated products. Our results show that: (i) false evidence of pricing-to-market is always found when using unit values, whether the law of one price holds or not; and (ii) the size of the bias increases with the level of product differentiation. Our simulation results support those conceptual findings. Thus, some of the positive pricing-to-market results in the literature could be an artifact of the product heterogeneity embodied in unit values rather than evidence of imperfect competition. Copyright 2007, Oxford University Press.

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  • Nathalie Lavoie & Qihong Liu, 2007. "Pricing-to-Market: Price Discrimination or Product Differentiation?," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 89(3), pages 571-581.
    • Handle: RePEc:oup:ajagec:v:89:y:2007:i:3:p:571-581
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    2. Goretzki, Philipp & Perekhozhuk, Oleksandr & Glauben, Thomas & Loy, Jens-Peter, 2019. "Price discrimination and market power in the international fertiliser market: Empirical evidence for exports from Russia," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 5(2), pages 5-24.
    3. Pettersen, Ingrid Kristine & Brækkan, Eivind Hestvik & Myrland, Øystein, 2018. "Are Norwegian fishermen selling in the same market?," Journal of Commodity Markets, Elsevier, vol. 12(C), pages 9-18.
    4. Gafarova, Gulmira & Perekhozhuk, Oleksandr & Glauben, Thomas, 2015. "Price discrimination and pricing-to-market behavior of Black Sea region wheat exporters," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 47(3), pages 287-316.
    5. Ferguson, Shon & Gars, Johan, 2016. "Productivity Shocks, International Trade and Import Prices: Evidence from Agriculture," Working Paper Series 1107, Research Institute of Industrial Economics.
    6. Kerstin Uhl & Oleksandr Perekhozhuk & Thomas Glauben, 2016. "Price Discrimination in Russian Wheat Exports: Evidence from Firm-level Data," Journal of Agricultural Economics, Wiley Blackwell, vol. 67(3), pages 722-740, September.
    7. Dreyer, Heiko & Fedoseeva, Svetlana & Herrmann, Roland, 2016. "Gravity Meets Pricing To Market: What A Combinedmethod Approach Tells Us On German Beer Exports," Working Papers 234640, American Association of Wine Economists.
    8. Guillaume Gaulier & Amina Lahrèche-Révil & Isabelle Méjean, 2008. "Exchange-rate pass-through at the product level," Canadian Journal of Economics, Canadian Economics Association, vol. 41(2), pages 425-449, May.
    9. Svetlana Fedoseeva & Laura M. Werner, 2016. "How linear is pricing-to-market? Empirical assessment of hysteresis and asymmetry of PTM," Empirical Economics, Springer, vol. 50(3), pages 1065-1090, May.
    10. Fedoseeva, Svetlana, 2013. "Do German exporters PTM? Searching for right answers in sugar confectionery exports," Discussion Papers 62, Justus Liebig University Giessen, Center for international Development and Environmental Research (ZEU).
    11. Goretzki, Philipp & Perekhozhuk, Oleksandr & Glauben, Thomas & Loy, Jens-Peter, 2017. "Market power in the international fertiliser market: empirical evidence for exports from Russia," 2017 International Congress, August 28-September 1, 2017, Parma, Italy 261173, European Association of Agricultural Economists.
    12. Svetlana Fedoseeva & Laura M. Werner, 2014. "Asymmetry and Hysteresis: Two Perspectives on Pricing-to-Market Nonlinearity," Working Papers 2014.02, International Network for Economic Research - INFER.
    13. Guillaume Gaulier & Amina Lahrèche-Révil & Isabelle Méjean, 2006. "Structural Determinants of the Exchange-Rate Pass-Through," Working Papers 2006-03, CEPII research center.
    14. Philip Dawson & Matthew Gorton & Carmen Hubbard & Lionel Hubbard, 2017. "Pricing-To-Market Analysis: The Case of EU Wheat Exports," Journal of Agricultural Economics, Wiley Blackwell, vol. 68(1), pages 301-315, February.
    15. Fedoseeva, Svetlana & Werner, Laura M., 2014. "Questionning pricing-to-market linearity: partial sum decomposition approach applied to beer exports," 2014 International Congress, August 26-29, 2014, Ljubljana, Slovenia 182784, European Association of Agricultural Economists.
    16. Fedoseeva Svetlana, 2013. "(A)symmetry, (Non)linearity and Hysteresis of Pricing-To-Market: Evidence from German Sugar Confectionery Exports," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 11(1), pages 1-17, January.

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