Pricing-to-market, Trade Policy, and Market Power

Nicolas Berman (), Alan Asprilla (), Olivier Cadot and Melise Jaud ()
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Alan Asprilla: University of Lausanne

No 04-2015, IHEID Working Papers from Economics Section, The Graduate Institute of International Studies

Abstract: This paper studies the determinants of pricing-to-market at the firm-level, with a particular focus on the role of firm-specific and policy-induced market power. We use a large dataset containing export values and quantities by product and destination for all exporting firms in 12 developing and emerging countries, over several years. We first show that firms in our sample do price to market, i.e. significantly adjust their unit values in home currency in response to exchange-rate variations. The extent of pricing-to-market is quantitatively limited but highly significant and homogenous across origin countries despite their very different levels of development. We then study how firm performance and trade policy affect pricing-to-market at the firm-level. We find that within a given origin-destination-product cell, large, high-performance exporters price more to market. More importantly, we identify significant effects of trade-policy instruments on pricing-to-market: Higher import tariffs on a destination market are associated with less pricing-to-market, whereas non-tariff measures are associated with more. These results are consistent with models where pricing-to-market is increasing in firm size and market share, and suggest that trade policy has deep effects on market power, the direction of which depends on the type of instrument used.

Keywords: Pricing-to-market; trade policy; exchange rate; tariffs (search for similar items in EconPapers)
JEL-codes: F12 F13 F14 F31 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2015
New Economics Papers: this item is included in nep-bec, nep-com and nep-int
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:gii:giihei:heidwp04-2015

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