Pricing-to-Market: Price Discrimination or Product Differentiation?

Nathalie Lavoie and Qihong Liu ()

No 14524, Working Paper Series from University of Massachusetts, Amherst, Department of Resource Economics

Abstract: We employ a vertical differentiation model to examine the potential bias in pricing-to-market (PTM) results when using unit values aggregating differentiated products. Our results show that: i) false evidence of PTM ("pseudo PTM") is always found when using unit values, whether the law of one price holds or not; and ii) the extent to which results are biased due to pseudo PTM increases with the level of product differentiation. Correspondingly, our simulation results suggest that: i) it is possible to get a statistically significant estimate of the exchange rate coefficient, even when there is no real PTM; ii) the probability of a false PTM finding increases with product differentiation. Pseudo PTM is the result of a change in the mix of qualities imported when the exchange rate changes.

Keywords: Demand and Price Analysis; Marketing (search for similar items in EconPapers)
Pages: 23
Date: 2004
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Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Pricing-to-Market: Price Discrimination or Product Differentiation? (2007)
Working Paper: Pricing-to-Market: Price Discrimination or Product Differentiation? (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:umamwp:14524

DOI: 10.22004/ag.econ.14524

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