Discussion paper

DP7708 Why do within firm-product export prices differ across markets?

In this paper we analyse the relationship between gravity variables and f.o.b. export unit values using Hungarian firm-product-destination data. By taking firm-product level selection into account we show that export unit values increase with distance even for particular firm-product combinations. This cannot be explained by models assuming firm- or even firm-product level selection and constant markups. The differences are important quantitatively; price differences in Hungarian exports between Germany and the US are about 30%. We also show that unit values are positively related to GDP/capita and that there is a weak negative relationship between unit values and market size. We propose two possible explanations: first, firms may export different quality versions of the same product to different markets. Secondly, directly exporting firms may capture part of the markups on transport costs in their f.o.b. prices.

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Citation

Halpern, L, H Görg and B Murakozy (2010), ‘DP7708 Why do within firm-product export prices differ across markets?‘, CEPR Discussion Paper No. 7708. CEPR Press, Paris & London. https://cepr.org/publications/dp7708