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

Author(s):	Holger Görg, László Halpern, Balázs Muraközy
Publication Date:	February 2010
Keyword(s):	export, Hungary, price, selection
JEL(s):	D40, F12
Programme Areas:	International Trade and Regional Economics
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=7708

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.