Pricing-to-Market and the Failure of Absolute PPP

George Alessandria and Joseph Kaboski

American Economic Journal: Macroeconomics, 2011, vol. 3, issue 1, 91-127

Abstract: We show that deviations from the law of one price in tradable goods are an important source of violations of absolute purchasing power parity. Using highly disaggregated export data, we document systematic international price discrimination: at the US dock, low-income countries pay lower prices. This pricing-to-market is about twice as important as local nontraded inputs for differences in tradable prices. We propose a model of consumer search and pricing-to-market in which consumers in low-income countries have a comparative advantage in nontraded, nonmarket search activities. Evidence from cross-country time-use studies and US export prices supports the model. (JEL E31, F14)

JEL-codes: E31 F14 (search for similar items in EconPapers)
Date: 2011
Note: DOI: 10.1257/mac.3.1.91
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Citations: View citations in EconPapers (84)

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Working Paper: Pricing-to-market and the failure of absolute PPP (2007)
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