Income Differences and Prices of Tradables: Insights from an Online Retailer
Ina Simonovska ()
No 16233, NBER Working Papers from National Bureau of Economic Research, Inc
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 dataset 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 manufacture—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, while 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 favorably to estimates that I obtain from a standard dataset 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.
JEL-codes: E31 F12 L11 (search for similar items in EconPapers)
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Published as Ina Simonovska, 2015. "Income Differences and Prices of Tradables: Insights from an Online Retailer," The Review of Economic Studies, vol 82(4), pages 1612-1656.
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Journal Article: Income Differences and Prices of Tradables: Insights from an Online Retailer (2015)
Working Paper: Income Differences and Prices of Tradables (2009)
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