Barter for price discrimination? A theory and evidence from Russia
Unprecedented demonetization of Russia’s transition economy has been explained by tight monetary policy, tax evasion and poor …nancial intermediation. We show that market power may also be important. We build a model of imperfect competition in which …rms use barter for price discrimination. The model predicts a positive relationship between concentration of market power and share of barter in sales. The model has multiple equilibria which may explain persistence of barter in Russia but not in other economies. Using a unique dataset on barter transactions in Russia, we show that the …rm-level evidence is consistent with the model’s predictions.
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