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Understanding International Prices: Customers as Capital

  • Jaromir B. Nosal

    (Columbia University)

  • Lukasz A. Drozd

    (University of Pennsylvania, The Wharton School)

This paper develops a new theory of pricing-to-market driven by sluggish market shares. Our key innovation is a capital theoretic model of marketing in which relations with the customers are valuable. We discipline the introduced friction using a unique prediction of the model about the low short-run and high long-run price elasticity of international trade flows, consistent with the data. The model accounts for several pricing implications that are puzzling for a large class of theories. The good performance on the quantities side is maintained.

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Paper provided by Society for Economic Dynamics in its series 2010 Meeting Papers with number 1027.

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Date of creation: 2010
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Handle: RePEc:red:sed010:1027
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Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA

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