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How continuing exporters set the price? Theory and empirical evidence from China

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Listed:
  • Tan, Yong
  • Lin, Faqin
  • Hu, Cui

Abstract

In this paper, we build a dynamic game model of quantity competition to explain the price difference between continuing exporters and exits. Continuing exports are forward looking and they may intentionally set a lower price in the export market at current stage to crowd out the competitors to maximize the overall expected profit in their total life period. Using a large sample of matched panel data of Chinese firms from firm-level production data and product-level trade data, we find that after controlling the most important determinants of export price as well as the firm-year-specific effects, continuing exporters charge a price 42.4%-54.0% lower than the price level charged by future exits in China.

Suggested Citation

  • Tan, Yong & Lin, Faqin & Hu, Cui, 2015. "How continuing exporters set the price? Theory and empirical evidence from China," MPRA Paper 65534, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:65534
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    References listed on IDEAS

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    More about this item

    Keywords

    Export prices; Dynamic game; Quantity competition;

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • F10 - International Economics - - Trade - - - General

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