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Understanding Markups in the Open Economy under Bertrand Competition

Beatriz de Blas () and Katheryn Russ ()

No 16587, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The purpose of this paper is to understand the effects of endogenous markups and trade costs on the pricing behavior of exporters when firms are heterogeneous in productivity. Using new analytical distributions for markups under Bertrand competition, we uncover Ricardian patterns of export pricing that generate higher markups and export price volatility when industrialized countries sell to developing countries. These Ricardian patterns dissipate when developing countries move from bilateral to multilateral trade liberalization. The results arise from a form of price rigidity for exports that arises endogenously due to cut-throat competition, even though prices are otherwise perfectly flexible.

JEL-codes: F0 F1 F4 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-mic and nep-opm
Date: 2010-12
Note: ITI
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