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Demand complementarities and cross-country price differences

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  • Daniel Murphy

Abstract

Empirical studies document that markups vary across destinations. This paper proposes a novel mechanism to explain variation in markups: consumers utility from final goods and services depends on their consumption of complementary goods and services. In countries with more complementary goods and services, consumer demand is less elastic, enabling monopolistically competitive firms to charge higher prices. The paper provides empirical evidence documenting a dependence of prices on demand complementarities.

Suggested Citation

  • Daniel Murphy, 2019. "Demand complementarities and cross-country price differences," Canadian Journal of Economics, Canadian Economics Association, vol. 52(1), pages 253-278, February.
    • Handle: RePEc:cje:issued:v:52:y:2019:i:1:p:253-278
    DOI: 10.1111/caje.12371
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    Cited by:

    1. Alan J. Auerbach & Yuriy Gorodnichenko & Daniel Murphy, 2019. "Macroeconomic Frameworks," NBER Working Papers 26365, National Bureau of Economic Research, Inc.
    2. Auerbach, Alan J. & Gorodnichenko, Yuriy & Murphy, Daniel, 2021. "Inequality, fiscal policy and COVID19 restrictions in a demand-determined economy," European Economic Review, Elsevier, vol. 137(C).

    More about this item

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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