IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Markups, Quality and Transport Costs

  • Julien Martin

    (Crest)

This paper investigates the impact of transport costs on firm pricing policy. The empiricalpart provides new evidence on trade prices based on firm level data from France. Wefind that for a given product, a typical exporting firm sets higher (net of transport costs)prices toward more distant countries. This empirical regularity suggests that firms chargehigher markups and/or sell more expensive quality up-graded versions of their productwhen facing higher transport costs. None of these two mechanisms is present in models ofinternational trade. Even models with firm heterogeneity in terms of quality fail in explainingthe firm pricing policy observed in the data. We demonstrate that, in existing modelsof trade, for firms to set higher markups or to upgrade the quality of their product towardmore distant countries it is necessary to relax the mill pricing assumption and to use perunit rather than iceberg transport costs. This finding is critical since, in trade models, thestructure of transport costs affects the microeconomic behavior of exporting firms but alsothe composition of export flows and the size of gains from trade.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.crest.fr/images/doctravail/2010-17.pdf
File Function: Crest working paper version
Download Restriction: no

Paper provided by Centre de Recherche en Economie et Statistique in its series Working Papers with number 2010-17.

as
in new window

Length: 31
Date of creation: 2010
Date of revision:
Handle: RePEc:crs:wpaper:2010-17
Contact details of provider: Postal: 15 Boulevard Gabriel Peri 92245 Malakoff Cedex
Phone: 01 41 17 60 81
Web page: http://www.crest.fr
More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Anne-Célia Disdier & Keith Head, 2008. "The Puzzling Persistence of the Distance Effect on Bilateral Trade," The Review of Economics and Statistics, MIT Press, vol. 90(1), pages 37-48, February.
  2. Juan Carlos Hallak & Jagadeesh Sivadasan, 2009. "Firms' Exporting Behavior under Quality Constraints," Working Papers 09-13, Center for Economic Studies, U.S. Census Bureau.
  3. James A. Brander & Paul Krugman, 1983. "A 'Reciprocal Dumping' Model of International Trade," NBER Working Papers 1194, National Bureau of Economic Research, Inc.
  4. Julien Martin, 2010. "Markups, Quality and Transport Costs," Working Papers 2010-17, Centre de Recherche en Economie et Statistique.
  5. Brander, James A., 1981. "Intra-industry trade in identical commodities," Journal of International Economics, Elsevier, vol. 11(1), pages 1-14, February.
  6. Isabelle Méjean & Cyrille Schwellnus, 2009. "Price Convergence in the European Union: Within Firms or Composition of Firms?," Working Papers 2009-03, CEPII research center.
  7. Christian Broda & David E. Weinstein, 2004. "Globalization and the Gains from Variety," NBER Working Papers 10314, National Bureau of Economic Research, Inc.
  8. James Harrigan, 2005. "Airplanes and Comparative Advantage," NBER Working Papers 11688, National Bureau of Economic Research, Inc.
  9. Eric Verhoogen, 2007. "Trade, quality upgrading and wage inequality in the Mexican manufacturing sector," Discussion Papers 0607-08, Columbia University, Department of Economics.
  10. Mark J. Melitz, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," NBER Working Papers 8881, National Bureau of Economic Research, Inc.
  11. Jonathan Eaton & Samuel Kortum & Francis Kramarz, 2004. "Dissecting trade: firms, industries, and export destinations," Staff Report 332, Federal Reserve Bank of Minneapolis.
  12. Nancy D. Ruggles, 1974. "The Role Of The Computer In Economic And Social Research in Latin America," NBER Books, National Bureau of Economic Research, Inc, number rugg74-1.
  13. Paulo Bastos & Joana Silva, . "The Quality of a Firm’s Exports: Where you Export to Matters," Discussion Papers 08/18, University of Nottingham, GEP.
  14. Gianmarco Ottaviano & Takatoshi Tabuchi & Jacques-Francois Tissse, 1999. "Agglomeration and Trade Revisited," CIRJE F-Series CIRJE-F-65, CIRJE, Faculty of Economics, University of Tokyo.
  15. Andrew B. Bernard & J. Bradford Jensen & Stephen J. Redding & Peter K. Schott, 2007. "Firms in International Trade," Journal of Economic Perspectives, American Economic Association, vol. 21(3), pages 105-130, Summer.
  16. David L. Hummels & Volodymyr Lugovskyy, 2008. "International pricing in a generalized model of ideal variety," Proceedings, Board of Governors of the Federal Reserve System (U.S.).
  17. Corsetti, Giancarlo & Dedola, Luca, 2005. "A macroeconomic model of international price discrimination," Journal of International Economics, Elsevier, vol. 67(1), pages 129-155, September.
  18. Lionel Fontagné & Guillaume Gaulier & Soledad Zignago, 2007. "Specialisation across Varieties within Products and North-South Competition," Working Papers 2007-06, CEPII research center.
  19. Irving Kravis & Robert E. Lipsey, 1974. "International Trade Prices and Price Proxies," NBER Chapters, in: The Role Of The Computer In Economic And Social Research in Latin America, pages 253-268 National Bureau of Economic Research, Inc.
  20. David Hummels & Peter J. Klenow, 2005. "The Variety and Quality of a Nation's Exports," American Economic Review, American Economic Association, vol. 95(3), pages 704-723, June.
  21. Gianmarco Ottaviano & Thierry Mayer, . "The happy few: the internationalisation of European firms," Blueprints, Bruegel, number 12.
  22. Yunker, James A., 1979. "Variety, equity and efficiency: Product variety in an industrial society : By Kelvin Lancaster. New York: Columbia University Press, 1979. Pp. 373, Price: $22.50," Journal of Behavioral Economics, Elsevier, vol. 8(2), pages 195-197.
  23. Marc J. Melitz & Gianmarco I. P. Ottaviano, 2008. "Market Size, Trade, and Productivity," Review of Economic Studies, Oxford University Press, vol. 75(1), pages 295-316.
  24. Greenhut, Melvin L & Ohta, Hiroshi & Sailors, Joel, 1985. "Reverse Dumping: A Form of Spatial Price Discrimination," Journal of Industrial Economics, Wiley Blackwell, vol. 34(2), pages 167-81, December.
  25. Jonathan Eaton & Samuel Kortum, 2002. "Technology, Geography, and Trade," Econometrica, Econometric Society, vol. 70(5), pages 1741-1779, September.
  26. 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.
  27. Görg, Holger & Halpern, László & Muraközy, Balázs, 2010. "Why do within firm-product export prices differ across markets?," CEPR Discussion Papers 7708, C.E.P.R. Discussion Papers.
  28. Mayer, Thierry & Zignago, Soledad, 2006. "Notes on CEPII’s distances measures," MPRA Paper 26469, University Library of Munich, Germany.
  29. Gaulier, Guillaume & Zignago, Soledad, 2004. "Notes on BACI (analytical database of international trade). 1989-2002 version," MPRA Paper 32401, University Library of Munich, Germany.
  30. Arnaud Costinot & Andres Rodriguez-Clare & Costas Arkolakis, 2010. "New Trade Models, Same Old Gains?," 2010 Meeting Papers 433, Society for Economic Dynamics.
  31. Peter K. Schott, 2004. "Across-product Versus Within-product Specialization in International Trade," The Quarterly Journal of Economics, MIT Press, vol. 119(2), pages 646-677, May.
  32. Irarrazabal, Alfonso & Moxnes, Andreas & Opromolla, Luca David, 2010. "The Tip of the Iceberg: Modeling Trade Costs and Implications for Intra-Industry Reallocation," CEPR Discussion Papers 7685, C.E.P.R. Discussion Papers.
  33. Krugman, Paul, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, American Economic Association, vol. 70(5), pages 950-59, December.
  34. Mick Silver, 2007. "Do Unit Value Export, Import, and Terms of Trade Indices Represent or Misrepresent Price Indices?," IMF Working Papers 07/121, International Monetary Fund.
  35. Laura Bottazzi & Gianmarco Ottaviano, . "Modelling Transport Costs in International Trade: A Comparison Among Alternative Approaches," Working Papers 105, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  36. Andrew B. Bernard & Stephen Redding & Peter K. Schott, 2010. "Multiple-product firms and product switching," LSE Research Online Documents on Economics 27861, London School of Economics and Political Science, LSE Library.
  37. Richard Baldwin & James Harrigan, 2007. "Zeros, Quality and Space: Trade Theory and Trade Evidence," NBER Working Papers 13214, National Bureau of Economic Research, Inc.
  38. Philip McCann, 2005. "Transport costs and new economic geography," Journal of Economic Geography, Oxford University Press, vol. 5(3), pages 305-318, June.
  39. David Hummels & Volodymyr Lugovskyy, 2006. "Are Matched Partner Trade Statistics a Usable Measure of Transportation Costs?," Review of International Economics, Wiley Blackwell, vol. 14(1), pages 69-86, 02.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:crs:wpaper:2010-17. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Florian Sallaberry)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.