Sub-national Differentiation and the Role of the Firm in Optimal International Pricing

Edward J. Balistreri () and James R. Markusen ()

No 13130, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We illuminate the relationship between optimal firm pricing and optimal trade policy by exploring a generalized model that accommodates product differentiation at both the national and sub-national (firm) levels. We assume monopolistic competition in the differentiated products at the sub-national level. When the national and sub-national substitution elasticities are similar we find little opportunity for small countries to improve their terms of trade through trade distortions, because firms play an important preemptive role in optimally pricing unique varieties. We contrast this with standard applications of perfect-competition Armington models, which exhibit high optimal tariffs--even for relatively small countries.

JEL-codes: F1 F13 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-int, nep-mic and nep-mkt
Date: 2007-05
Note: ITI IO
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Journal Article: Sub-national differentiation and the role of the firm in optimal international pricing (2009)
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