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

Listed author(s):
  • Nathalie Lavoie
  • Qihong Liu

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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File URL: http://hdl.handle.net/10.1111/j.1467-8276.2006.01000.x
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Article provided by Agricultural and Applied Economics Association in its journal American Journal of Agricultural Economics.

Volume (Year): 89 (2007)
Issue (Month): 3 ()
Pages: 571-581

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Handle: RePEc:oup:ajagec:v:89:y:2007:i:3:p:571-581
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  1. Pinelopi Koujianou Goldberg & Michael M. Knetter, 1997. "Goods Prices and Exchange Rates: What Have We Learned?," Journal of Economic Literature, American Economic Association, vol. 35(3), pages 1243-1272, September.
  2. David Hummels & Alexandre Skiba, 2004. "Shipping the Good Apples Out? An Empirical Confirmation of the Alchian-Allen Conjecture," Journal of Political Economy, University of Chicago Press, vol. 112(6), pages 1384-1402, December.
  3. Gagnon, Joseph E. & Knetter, Michael M., 1995. "Markup adjustment and exchange rate fluctuations: evidence from panel data on automobile exports," Journal of International Money and Finance, Elsevier, vol. 14(2), pages 289-310, April.
  4. Jiawen Yang, 1997. "Exchange Rate Pass-Through In U.S. Manufacturing Industries," The Review of Economics and Statistics, MIT Press, vol. 79(1), pages 95-104, February.
  5. Richard Carew & Wojciech J. Florkowski, 2003. "Pricing to Market Behavior by Canadian and U.S. Agri-food Exporters: Evidence from Wheat, Pulse and Apples," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 51(2), pages 139-159, July.
  6. Feenstra, Robert C. & Gagnon, Joseph E. & Knetter, Michael M., 1996. "Market share and exchange rate pass-through in world automobile trade," Journal of International Economics, Elsevier, vol. 40(1-2), pages 187-207, February.
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