Income differences and prices of tradables
This paper presents novel evidence of price discrimination, using prices of identical goods in 28 countries. I explain the observed phenomenon via non-homothetic preferences, in a model of trade with product differentiation and firm productivity heterogeneity. The model brings theory and data closer along a key dimension: it generates positively related prices of tradables and income, while preserving exporter behavior and trade flows of existing frameworks. It further captures observations that richer countries buy more per product and consume more diverse bundles. Quantitatively, the model suggests that variable markups account for 80 percent of the positive price-income relationship across 123 countries.
|Date of creation:||2010|
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- Marc J. Melitz & Gianmarco I. P. Ottaviano, 2008.
"Market Size, Trade, and Productivity,"
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- Ottaviano, Gianmarco & Melitz, Marc, 2008. "Market Size, Trade, and Productivity," Scholarly Articles 3229096, Harvard University Department of Economics.
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"Pricing-to-market and the failure of absolute PPP,"
07-29, Federal Reserve Bank of Philadelphia.
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"International trade and income differences,"
435, Federal Reserve Bank of Minneapolis.
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- 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.
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"Endogenous Variety and the Gains from Trade,"
American Economic Review,
American Economic Association, vol. 98(2), pages 444-50, May.
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