EconPapers    
Economics at your fingertips  
 

Income Differences and Prices of Tradables: Insights from an Online Retailer

Ina Simonovska ()

Review of Economic Studies, 2015, vol. 82, issue 4, 1612-1656

Abstract: I study the positive relationship between prices of tradable goods and per capita income. I develop a highly tractable general equilibrium model of international trade with heterogeneous firms and non-homothetic consumer preferences that positively links prices of tradables to consumer income. Guided by the model's testable prediction, I estimate the elasticity of price with respect to per capita income from a unique data set that I construct, which features prices of 245 identical goods sold in 29 European, Asian, and North American markets via the Internet by Spain's second largest apparel manufacturer—Mango. I find that doubling a destination's per capita income results in an 18% increase in the price of identical items sold there. Per capita income differences account for a third, whereas shipping cost differences can explain up to a third of the cross-country price variations of identical items purchased via the Internet by consumers who do not take advantage of quantity discounts. The price elasticity estimates compare favourably to estimates that I obtain from a standard data set that features prices across retail locations around the world, suggesting that variable mark-ups play a key role in accounting for observed cross-country differences in prices of tradables.

Keywords: LOP failure; Variable mark-ups; Non-homothetic preferences; Online retail (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (34) Track citations by RSS feed

Downloads: (external link)
http://hdl.handle.net/10.1093/restud/rdv015 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Income Differences and Prices of Tradables: Insights from an Online Retailer (2010) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oup:restud:v:82:y:2015:i:4:p:1612-1656.

Access Statistics for this article

Review of Economic Studies is currently edited by Andrea Prat, Bruno Biais, Kjetil Storesletten and Enrique Sentana

More articles in Review of Economic Studies from Oxford University Press
Bibliographic data for series maintained by Oxford University Press ().

 
Page updated 2020-08-02
Handle: RePEc:oup:restud:v:82:y:2015:i:4:p:1612-1656.