Learning, Prices, and Firm Dynamics

Paulo Bastos, Daniel Dias and Olga Timoshenko

No 1193, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)

Abstract: We document new facts about the evolution of firm performance and prices in international markets, and propose a theory of firm dynamics emphasizing the interaction between learning about demand and quality choice to explain the observed patterns. Using data from the Portuguese manufacturing sector, we find that: (1) firms with longer spells of activity in export destinations tend to ship larger quantities at lower prices; (2) older exporters tend to use more expensive inputs; (3) revenue growth within destinations (conditional on initial size) tends to decline with market experience; and (4) input prices and quantities tend to increase with revenue growth within firms. We develop a model of endogenous input and output quality choices in a learning environment that is able to account for these patterns. Counterfactual simulations reveal that minimum quality standards on traded goods reduce welfare by lowering entry in export markets and reallocating resources from old and large towards young and small firms.

Keywords: Learning about demand; Prices; Product quality; Firm dynamics; Quality standards (search for similar items in EconPapers)
JEL-codes: F12 F14 L11 O14 (search for similar items in EconPapers)
Pages: 53 pages
Date: 2017-02-08
New Economics Papers: this item is included in nep-ind and nep-int
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https://www.federalreserve.gov/econresdata/ifdp/2017/files/ifdp1193.pdf (application/pdf)

Related works:
Journal Article: Learning, prices and firm dynamics (2018)
Journal Article: Learning, prices and firm dynamics (2018)
Working Paper: Learning, Prices, and Firm Dynamics (2017)
Working Paper: Learning, Prices, and Firm Dynamics (2017)
Working Paper: Learning, Prices, and Firm Dynamics (2016)
Working Paper: Learning, Prices, and firm dynamics (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgif:1193

DOI: 10.17016/IFDP.2017.1193

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