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Did Foreigners Pay America's Tariffs? Quantity Discounts, Scale Economies and Incomplete Pass-Through

Author

Listed:
  • Sharat Ganapati
  • Colin J. Hottman

Abstract

Transaction-level quantity discounts are a pervasive feature of US trade, shaping both price variation and tariff incidence. Using administrative microdata, we show that these discounts reflect transaction-level scale economies rather than market power. Accounting for these micro-level economies resolves a key puzzle: while observed import prices rose one-for-one with 2018-2019 US tariffs, we show this was driven by the loss of scale economies as transaction sizes collapsed. Controlling for this scale effect, the strategic pass-through of tariffs to scale-free prices falls to 60 percent, implying foreign exporters absorbed a significant share of the burden through reduced markups.

Suggested Citation

  • Sharat Ganapati & Colin J. Hottman, 2026. "Did Foreigners Pay America's Tariffs? Quantity Discounts, Scale Economies and Incomplete Pass-Through," NBER Working Papers 34901, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:34901
    Note: ITI
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    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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