IDEAS home Printed from https://ideas.repec.org/p/isa/wpaper/123.html
   My bibliography  Save this paper

Pricing to market when quality matters

Author

Listed:
  • Roberto Basile

    (ISAE - Institute for Studies and Economic Analyses)

  • Sergio de Nardis

    (ISAE - Institute for Studies and Economic Analyses)

  • Alessandro Girardi

    (ISAE - Institute for Studies and Economic Analyses)

Abstract

We build a model of price differentiation with firm heterogeneity, which allows for imperfect competition and market segmentation in the presence of flexible exchange rates as well as horizontal and vertical differentiation and different tastes of consumers in destination markets. We empirically assess the main predictions of our theoretical framework by using firm-level data surveyed by ISAE. We document that export-domestic price margins are significantly affected by price and quality competitiveness even controlling for foreign demand conditions, size, export intensity, destination markets and unobservables. Finally, we provide evidence of a strong heterogeneity across firms in their reaction to price and quality competitiveness.

Suggested Citation

  • Roberto Basile & Sergio de Nardis & Alessandro Girardi, 2009. "Pricing to market when quality matters," ISAE Working Papers 123, ISTAT - Italian National Institute of Statistics - (Rome, ITALY).
    • Handle: RePEc:isa:wpaper:123
    as

    Download full text from publisher

    File URL: http://lipari.istat.it/digibib/Working_Papers/WP_123_2009_Basile_deNardis_Girardi.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Raphael A. Auer & Thomas Chaney, 2008. "Cost Pass Through in a Competitive Model of Pricing-to-Market," Working Papers 2008-06, Swiss National Bank.
    2. Andrew Atkeson & Ariel Burstein, 2008. "Pricing-to-Market, Trade Costs, and International Relative Prices," American Economic Review, American Economic Association, vol. 98(5), pages 1998-2031, December.
    3. Eric A. Verhoogen, 2008. "Trade, Quality Upgrading, and Wage Inequality in the Mexican Manufacturing Sector," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 123(2), pages 489-530.
    4. Corsetti, Giancarlo & Dedola, Luca & Leduc, Sylvain, 2008. "High exchange-rate volatility and low pass-through," Journal of Monetary Economics, Elsevier, vol. 55(6), pages 1113-1128, September.
    5. repec:clu:wpaper:0708-12 is not listed on IDEAS
    6. 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.
    7. Marston, Richard C., 1990. "Pricing to market in Japanese manufacturing," Journal of International Economics, Elsevier, vol. 29(3-4), pages 217-236, November.
    8. José Manuel Campa & Linda S. Goldberg, 2005. "Exchange Rate Pass-Through into Import Prices," The Review of Economics and Statistics, MIT Press, vol. 87(4), pages 679-690, November.
    9. Richard Baldwin & James Harrigan, 2011. "Zeros, Quality, and Space: Trade Theory and Trade Evidence," American Economic Journal: Microeconomics, American Economic Association, vol. 3(2), pages 60-88, May.
    10. Marc J. Melitz & Giancarlo I. P. Ottaviano, 2021. "Market Size, Trade, and Productivity," World Scientific Book Chapters, in: Firms and Workers in a Globalized World Larger Markets, Tougher Competition, chapter 4, pages 87-108, World Scientific Publishing Co. Pte. Ltd..
    11. Betts, Caroline & Devereux, Michael B., 1996. "The exchange rate in a model of pricing-to-market," European Economic Review, Elsevier, vol. 40(3-5), pages 1007-1021, April.
    12. Froot, Kenneth A & Klemperer, Paul D, 1989. "Exchange Rate Pass-Through When Market Share Matters," American Economic Review, American Economic Association, vol. 79(4), pages 637-654, September.
    13. repec:hal:spmain:info:hdl:2441/10221 is not listed on IDEAS
    14. Stefan Boes & Rainer Winkelmann, 2006. "The Effect of Income on Positive and Negative Subjective Well-Being," SOI - Working Papers 0605, Socioeconomic Institute - University of Zurich.
    15. Maurice Kugler & Eric Verhoogen, 2012. "Prices, Plant Size, and Product Quality," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 79(1), pages 307-339.
    16. 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.
    17. van Praag, B. M. S. & Frijters, P. & Ferrer-i-Carbonell, A., 2003. "The anatomy of subjective well-being," Journal of Economic Behavior & Organization, Elsevier, vol. 51(1), pages 29-49, May.
    18. Hallak, Juan Carlos, 2006. "Product quality and the direction of trade," Journal of International Economics, Elsevier, vol. 68(1), pages 238-265, January.
    19. William Greene, 2003. "A Interpreting Estimated Parameters and Measuring Individual Heterogeneity in Random Coefficient Models," Working Papers 03-19, New York University, Leonard N. Stern School of Business, Department of Economics.
    20. Sven W. Arndt & J. David Richardson, 1987. "Real-Financial Linkages Among Open Economies," NBER Working Papers 2230, National Bureau of Economic Research, Inc.
    21. Nicolas Berman & Philippe Martin & Thierry Mayer, 2009. "How do Different Exporters React to Exchange Rate Changes? Theory, Empirics and Aggregate Implications," Working Papers 2009-32, CEPII research center.
    22. Baldwin, Richard, 1988. "Hyteresis in Import Prices: The Beachhead Effect," American Economic Review, American Economic Association, vol. 78(4), pages 773-785, September.
    23. Choi, Yo Chul & Hummels, David & Xiang, Chong, 2009. "Explaining import quality: The role of the income distribution," Journal of International Economics, Elsevier, vol. 78(2), pages 293-303, July.
    24. Johnson, Robert C., 2012. "Trade and prices with heterogeneous firms," Journal of International Economics, Elsevier, vol. 86(1), pages 43-56.
    25. Train,Kenneth E., 2009. "Discrete Choice Methods with Simulation," Cambridge Books, Cambridge University Press, number 9780521747387, September.
    26. Dornbusch, Rudiger, 1987. "Exchange Rates and Prices," American Economic Review, American Economic Association, vol. 77(1), pages 93-106, March.
    27. Bhat, Chandra R., 2001. "Quasi-random maximum simulated likelihood estimation of the mixed multinomial logit model," Transportation Research Part B: Methodological, Elsevier, vol. 35(7), pages 677-693, August.
    28. Richard Kneller & Zhihong Yu, 2008. "Quality Selection, Chinese Exports and Theories of Heterogeneous Firm Trade," Discussion Papers 08/44, University of Nottingham, GEP.
    29. repec:hal:wpspec:info:hdl:2441/10221 is not listed on IDEAS
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Roberto Basile & Sergio de Nardis & Alessandro Girardi, 2012. "Pricing to market, firm heterogeneity and the role of quality," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 148(4), pages 595-615, December.
    2. A. Auer, Raphael & Chaney, Thomas & Sauré, Philip, 2018. "Quality pricing-to-market," Journal of International Economics, Elsevier, vol. 110(C), pages 87-102.
    3. José Antonio Rodríguez-López, 2011. "Prices and Exchange Rates: A Theory of Disconnect," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 78(3), pages 1135-1177.
    4. Chen, Natalie & Juvenal, Luciana, 2016. "Quality, trade, and exchange rate pass-through," Journal of International Economics, Elsevier, vol. 100(C), pages 61-80.
    5. Raphael Auer & Thomas Chaney, 2009. "Exchange Rate Pass-Through in a Competitive Model of Pricing-to-Market," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(s1), pages 151-175, February.
    6. Chen, Natalie & Juvenal, Luciana, 2022. "Markups, quality, and trade costs," Journal of International Economics, Elsevier, vol. 137(C).
    7. Chen, Natalie & Juvenal, Luciana, 2018. "Quality and the Great Trade Collapse," Journal of Development Economics, Elsevier, vol. 135(C), pages 59-76.
    8. Raphael Auer, 2009. "Product Heterogeneity, Within-Industry Trade Patterns, and the Home Bias of Consumption?," Working Papers 09.05, Swiss National Bank, Study Center Gerzensee.
    9. Kiliç, Rehim, 2016. "Regime-dependent exchange-rate pass-through to import prices," International Review of Economics & Finance, Elsevier, vol. 41(C), pages 295-308.
    10. Melitz, Marc J. & Redding, Stephen J., 2014. "Heterogeneous Firms and Trade," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.), Handbook of International Economics, edition 1, volume 4, chapter 0, pages 1-54, Elsevier.
    11. Alcalá, Francisco, 2016. "Specialization across goods and export quality," Journal of International Economics, Elsevier, vol. 98(C), pages 216-232.
    12. Rosario Crinò & Paolo Epifani, 2009. "Productivity, Quality and Export Behavior (Revised version of: Firm-Export Intensity and Productivity, September 2011)," Development Working Papers 271, Centro Studi Luca d'Agliano, University of Milano.
    13. Emi Nakamura & Jón Steinsson, 2012. "Lost in Transit: Product Replacement Bias and Pricing to Market," American Economic Review, American Economic Association, vol. 102(7), pages 3277-3316, December.
    14. Jennie Bai & Jia Guo & Benjamin R. Mandel, 2013. "Going global: markups and product quality in the Chinese art market," Staff Reports 614, Federal Reserve Bank of New York.
    15. Burstein, Ariel & Gopinath, Gita, 2014. "International Prices and Exchange Rates," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.), Handbook of International Economics, edition 1, volume 4, chapter 0, pages 391-451, Elsevier.
    16. Philippe Andrade, 2010. "Competition and Pass-through on international markets: Firm-level evidence from VAT shocks," 2010 Meeting Papers 820, Society for Economic Dynamics.
    17. Pablo Fajgelbaum & Gene M. Grossman & Elhanan Helpman, 2011. "Income Distribution, Product Quality, and International Trade," Journal of Political Economy, University of Chicago Press, vol. 119(4), pages 721-765.
    18. Matthieu Crozet & Keith Head & Thierry Mayer, 2012. "Quality Sorting and Trade: Firm-level Evidence for French Wine," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 79(2), pages 609-644.
    19. Raphael A. Auer, 2013. "Product Heterogeneity, Cross-Country Taste Differences, and the Consumption Home Bias," Working Papers 13.01, Swiss National Bank, Study Center Gerzensee.
    20. Lisandra Flach & Eckhard Janeba, 2017. "Income inequality and export prices across countries," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 50(1), pages 162-200, February.

    More about this item

    Keywords

    Pricing to market; qualitative choice models; firm heterogeneity.;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • F10 - International Economics - - Trade - - - General
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:isa:wpaper:123. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Stefania Rossetti (email available below). General contact details of provider: https://edirc.repec.org/data/istgvit.html .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.