Trade Costs and Markups

Alexander McQuoid and Loris Rubini

No 454, Documentos de Trabajo from Instituto de Economia. Pontificia Universidad Católica de Chile.

Abstract: We explore the effects of trade costs on markups by building a new model consistent with three stylized facts: exporters charge higher markups, markups increase when starting to export, and domestic and foreign sales are negatively correlated, which suggests decreasing returns. We calibrate the model to Chilean data, and simulate reductions in trade costs. Most markups increase along the intensive margin, and unambiguously decline along the extensive margin. This follows from prices adjusting less than marginal costs, which increase with output but decline as trade costs fall, resulting in pro-competitive effects on new exporters, but anti-competitive effects for incumbent exporters.

JEL-codes: F12 F17 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-int
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:ioe:doctra:454

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