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Understanding International Prices: Customers as Capital

Jaromir Nosal and Lukasz A. Drozd
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Lukasz A. Drozd: University of Pennsylvania, The Wharton School

No 1027, 2010 Meeting Papers from Society for Economic Dynamics

Abstract: This paper develops a new theory of pricing-to-market driven by sluggish market shares. Our key innovation is a capital theoretic model of marketing in which relations with the customers are valuable. We discipline the introduced friction using a unique prediction of the model about the low short-run and high long-run price elasticity of international trade flows, consistent with the data. The model accounts for several pricing implications that are puzzling for a large class of theories. The good performance on the quantities side is maintained.

Date: 2010
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Related works:
Journal Article: Understanding International Prices: Customers as Capital (2012) Downloads
Working Paper: Understanding international prices: customers as capital (2008) Downloads
Working Paper: Understanding International Prices: Customers as Capital (2007)
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