Demand complementarities and cross-country price differences

Daniel Murphy

Canadian Journal of Economics, 2019, vol. 52, issue 1, 253-278

Abstract: Empirical studies document that markups vary across destinations. This paper proposes a novel mechanism to explain variation in markups: consumers utility from final goods and services depends on their consumption of complementary goods and services. In countries with more complementary goods and services, consumer demand is less elastic, enabling monopolistically competitive firms to charge higher prices. The paper provides empirical evidence documenting a dependence of prices on demand complementarities.

JEL-codes: E31 (search for similar items in EconPapers)
Date: 2019
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