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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- Michael E. Waugh, 2009.
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435, Federal Reserve Bank of Minneapolis.
- Marc J. Melitz & Gianmarco I.P. Ottaviano, 2005.
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- Mario J. Crucini & Mototsugu Shintani, 2002. "Persistence in Law-Of-One-Price Deviations: Evidence from Micro-Data," Vanderbilt University Department of Economics Working Papers 0222, Vanderbilt University Department of Economics, revised Jul 2004.
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"Pricing-to-market and the failure of absolute PPP,"
07-29, Federal Reserve Bank of Philadelphia.
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