NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Quality, Variable Markups, and Welfare: A Quantitative General Equilibrium Analysis of Export Prices

Haichao Fan, Yao Amber Li, Sichuang Xu, Stephen R. Yeaple

NBER Working Paper No. 25611
Issued in February 2019
NBER Program(s):Industrial Organization, International Trade and Investment

Modern trade models attribute the dispersion of international prices to physical and man-made barriers to trade, to the pricing-to-market by heterogeneous producers and to differences in the quality of output offered by firms. This paper presents a general equilibrium model that incorporates all three of these mechanisms. Our model allows us to confront Chinese firm-level data on the prices charged and revenues earned across markets. We show that all three mechanisms are necessary to fit the distribution of prices and revenues across firms and markets. Accounting for endogenous quality heterogeneity across markets and firms is shown to be critical for the welfare implications of trade and for the response of prices to trade and tariff shocks

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Document Object Identifier (DOI): 10.3386/w25611

 
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