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Income differences and prices of tradables

Ina Simonovska ()

No 55, Globalization Institute Working Papers from Federal Reserve Bank of Dallas

Abstract: This paper presents novel evidence of price discrimination, using prices of identical goods in 28 countries. I explain the observed phenomenon via non-homothetic preferences, in a model of trade with product differentiation and firm productivity heterogeneity. The model brings theory and data closer along a key dimension: it generates positively related prices of tradables and income, while preserving exporter behavior and trade flows of existing frameworks. It further captures observations that richer countries buy more per product and consume more diverse bundles. Quantitatively, the model suggests that variable markups account for 80 percent of the positive price-income relationship across 123 countries.

Keywords: Income; International trade - Econometric models; Pricing; Price discrimination (search for similar items in EconPapers)
Date: 2010, Revised 2010
New Economics Papers: this item is included in nep-int and nep-opm
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Working Paper: Income Differences and Prices of Tradables (2009) Downloads
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