Markups and export-pricing strategies

1998

This paper investigates price discrimination of German exporters across different foreign markets. We examine the degree of pass-through of exchange rate fluctuations in the pricing of 70 export items. The model is estimated using panel data on export unit values. Parameter estimation relies on GMM first difference, fixed effects, LAD, OLS first difference, and the random coefficients model. The main

American Economic Review, 2001

Many empirical studies have rejected the law of one price. That prices of a good differ across locations has been explained by differences in product attributes and costs of local inputs, transport costs, trade barriers, and that buyers have imperfect information about prices in different locations; see Penelopi K. Goldberg and Michael M. Knetter (1997) for a survey. We examine the law of one price in situations where none of the mentioned reasons for its failure can be invoked. It has also been suggested that deviations from the law of one price are a consequence of rigid nominal prices and that different countries typically have different currencies. We explore if this can contribute to our understanding of deviations from the law of one price. Our data is taken from three Scandinavian duty-free outlets where each product (at the same location) has price tags in at least two currencies. Hence, a consumer has the option to choose between several prices for the same identical good. In such a setting there is a strong prior that the law of one price (LOP henceforward) holds well. However, the potential for arbitrage will arise since nominal prices are not continuously adjusted while exchange rates fluctuate daily. Based on standard tests, we reject LOP at all duty-free outlets. Given that LOP does not hold here, it is less surprising that many previous studies have found that prices of similar products at different locations differ significantly. Nevertheless, the main conclusion of the paper is that in this "natural experiment", LOP remains a useful guide to the behavior of relative prices. As deviations become large, nominal prices are adjusted to reduce the deviation from LOP, thereby limiting arbitrage opportunities. The patterns at the duty-free outlets suggest that there is a band of inaction so that "small" deviations from LOP may persist (for almost a decade in one case), but that large deviations quickly lead firms to adjust relative prices. The findings are consistent with costly arbitrage and fixed costs of adjusting nominal prices.

2007

Abstract We use Hungarian Customs data on product-level imports of manufacturing firms to document that the import price of a particular product varies substantially across buying firms. We relate the level of import prices to firm characteristics such as size, foreign ownership, and market power. We develop a theory of “pricing to firm”(PTF), where markups depend on the technology and competitive environment of the buyer.

Journal of Industry, Competition and Trade, 2014

We investigate the e¤ects of import penetration on the estimated price-cost margins of some 28,000 …rms operating in the Italian manufacturing sector, controlling for the potential endogeneity of the productivity shock. In the period considered (1998-2003), we …nd broad evidence of pro-competitive gains from trade at the aggregate level. However, when performing the same analysis at a more detailed industry level, we …nd a substantial heterogeneity of responses: in some industries the increased exposure to international trade is associated with higher, rather than lower, markups, while in others the relationship is not signi…cant. In particular, the industries in which we …nd a positive impact of import penetration on markups exhibit, on average, a high export-ratio, a larger variation in the composition of their productmix, and decreasing productivity. We show how all these features can be nested into existing theoretical models of …rms heterogeneity.

2016

We use a unique cross-section survey of manufacturing firms from four European countries (France, Germany, Italy, Spain) linked with balance sheet data to study the relationship between key aspects of globalization and firm-level markups. The main results are: (i) Exporting is positively correlated with markups; (ii) Importing intermediate inputs and outsourcing are also positively correlated with markups; (iii) Firms with affiliates have higher markups than other firms, while simply membership in a group or being foreign-owned seems to be less important; (iv) Perceived competition from low-cost markets is negatively correlated with markups; (v) Higher quality production and innovation, especially if it results in IP, has a strong positive relationship with markups; (vi) While these variables are correlated, they are significant in a joint model including all four groups, and 'fully globalized' firms tend to charge around 100% higher markups than non-globalized firms.

Annals of Economics and Finance, 2019

We present evidence using highly disaggregated Chinese firm-product data that increased import competition (resulting from reductions in output tariffs) induces incumbent exporters to increase product markups in export markets. This is driven by the upward markup adjustments of products closer to firms' core competencies, while products farther from core competencies have their markups lowered. We also investigate the underlying mechanisms empirically. Chinese multi-product exporters invest in improving the quality of their core products (which we term "quality-based core competency") and raise the quality more for products closer to their core competencies. This leads to heterogeneity in the responses of prices and markups to import competition. Our findings are robust to using alternative markup and import competition measures and different estimation methods, addressing endogenous issues and controlling for export and input tariffs. This paper contributes to the lit...

2019

This paper provides the evidence of a fall of markups of price over marginal costs in Poland over the last 15 years. Markups were calculated using a census of firms and the methodology proposed by De Loecker and Warzynski (2012). The fall of markups, by 18.6% for median and by 13.1% for weighted mean and experienced by 70% of firms, is robust to several empirical identification strategies. Moreover, the decline of markups is not related to changes in a sectoral composition and firms demography and is most severe in exporting firms. Our empirical results relate the fall of markups to globalization and emergence of the Global Value Chains. We show that the increasing reliance on imported components in production, together with rising concentration of domestic firms on export markets are the main factors behind the observed compression of markups. We also document a hump-shaped (U-shaped) relationship between foreign value added in exports (distance from final demand) and markups.

2011

We develop a theoretical model of retail competition that include two sources of quality, one inherently linked to brand characteristics and the other linked to the retailer level of service. We then measure their contribution in explaining the observed price differentials for a sample of U.K. grocery retailer prices in the south of Coventry during the period November 1995 to

2017

This paper tests important empirical predictions from international trade models linking trade behavior and firms’ markups using firm-level panel data for U.S. manufacturing firms from 1964-2011, producing the following results: firms of higher productivity have lower rates of exchange rate passthrough to export prices, i.e., they adjust their markups by a higher magnitude. However, firms of higher productivity also have less volatile markups, i.e, they adjust their markups less frequently than do firms of lower productivity. Such heterogeneous and complex firm behavior may be the reason why we are unable to explain the lack of response of aggregate prices to exchange rate movements. JEL Classification: F14, F41

Innovation, Economic Growth and the Firm, 2010

The paper compares the export price strategies of France, Germany and Italy using a large and common pool of manufacturing products and destination markets. Our results suggest that pricing-to-market (PTM) is not widespread among French and German exporters, whereas Italian one do adopt more often such a pricing strategy.