Intransparent Markets and Intra-Industry Trade

Christian Gormsen ()

No 09-20, Working Papers from University of Aarhus, Aarhus School of Business, Department of Economics

Abstract: Buyers are typically unaware of the full set of offers when making a purchase. This paper examines how international trade interacts with this problem of market intransparency. Sellers must communicate their offers through costly advertising, but cannot reach all buyers. Consequently, no market clearing price exists, and sellers randomize over an equilibrium price distribution. Letting sellers advertise their offers abroad leads to international trade, which would not take place under complete information. Buyers then receive more offers, leading to lower prices and welfare gains. Sellers in the model are identical, but appear heterogeneous due to their price randomization. In larger and more open economies, prices and markups will be lower, and exports are primarily realized by sellers who charge low prices. These predictions are similar to those of trade models where firm heterogeneity is assumed exogenously.

Keywords: advertising; intra-industry trade; firm heterogeneity; price dispersion (search for similar items in EconPapers)
JEL-codes: D43 D83 F12 M37 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2009-10-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.hha.dk/nat/wper/09-20_chgs.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 500 Can't connect to www.hha.dk:80 (nodename nor servname provided, or not known)

Related works:
Working Paper: Intransparent Markets and Intra-Industry Trade (2012)
Working Paper: Intransparent markets and intra-industry trade (2012)
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:hhs:aareco:2009_020

Access Statistics for this paper

More papers in Working Papers from University of Aarhus, Aarhus School of Business, Department of Economics The Aarhus School of Business, Prismet, Silkeborgvej 2, DK 8000 Aarhus C, Denmark. Contact information at EDIRC.
Bibliographic data for series maintained by Helle Vinbaek Stenholt ( this e-mail address is bad, please contact ).