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Quality, Variable Markups, and Welfare: A Quantitative General Equilibrium Analysis of Export Prices

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

Abstract

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 tractable 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 within and 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 firms and markets is shown to be critical for the response of prices to trade and tariff shocks.

Suggested Citation

  • Haichao Fan & Yao Amber Li & Sichuang Xu & Stephen R. Yeaple, 2019. "Quality, Variable Markups, and Welfare: A Quantitative General Equilibrium Analysis of Export Prices," NBER Working Papers 25611, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:25611
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    Cited by:

    1. Carsten Eckel & Florian Unger, 2023. "Credit Constraints, Endogenous Innovations, And Price Setting In International Trade," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 64(4), pages 1715-1747, November.
    2. Drivas, Kyriakos & Kalyvitis, Sarantis & Katsimi, Margarita, 2023. "Export prices and markups with a common currency: Empirical evidence from Greek exporting firms and euro adoption," International Review of Economics & Finance, Elsevier, vol. 87(C), pages 79-98.
    3. Robin Kaiji Gong & Yao Amber Li & Kalina Manova & Stephen Teng Sun & Kalina B. Manova, 2023. "Tickets to the Global Market: First US Patent Awards and Chinese Firm Exports," CESifo Working Paper Series 10790, CESifo.
    4. Jingyi Wang & Shuguang Liu & Yubin Zhao, 2023. "Spatial–Temporal Evolution and Driving Factors of Economic Dual Circulation Coordinated Development in China’s Coastal Provinces," Sustainability, MDPI, vol. 15(14), pages 1-21, July.
    5. Gilad Sorek, 2024. "Monopolistic Competition and Quality Innovation with Variable Demand Elasticity," Auburn Economics Working Paper Series auwp2024-05, Department of Economics, Auburn University.
    6. Mengzhou Qin & Zijie Fan & Yuan Zhong, 2022. "The Global Value Chain and Welfare Effects of Tariffs—Counterfactual Analysis of Sino–US Economic and Trade Frictions," Sustainability, MDPI, vol. 14(14), pages 1-22, July.
    7. Zheng, Han & Fujii, Daisuke, 2021. "Nonlinear Pricing in the Transport Industry and the Gains from Trade," Discussion paper series HIAS-E-112, Hitotsubashi Institute for Advanced Study, Hitotsubashi University.

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    More about this item

    JEL classification:

    • F1 - International Economics - - Trade
    • F10 - International Economics - - Trade - - - General
    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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