Export prices across firms and destinations Kalina Manova and Zhiwei Zang

Objectives Study causes of exporter’s success Study quality differentiation among exporters. Study adjustment of product quality according to countries where products are sold. Study the impact of inputs quality on prices, income and on reached markets.

Literature review Baldwin and Harrigan (2011), Johnson (2007) : Variation in export prices with destination size, income, distance and remoteness. Verhoogen (2008), Kugler and Verhoogen (2011) : exporters charge higher prices than non-exporters. Schott (2004), Hummels and Klenow (2005) : exportations prices increase with GDP per capita

What’s new ? Study of both exportation AND importation of firms. First article to study firm’s export level and importation prices depending on product and destinations. Show the importance of quality differentiation among firms and destinations within companies.

Across firms Stylized facts Exporters that charge higher export prices earn greaters revenues, have bigger sales and enter more markets Firms that export more, enter more markets and charge higher exports prices, import more expensive inputs

Stylized facts Across destinations Firms set higher prices in richer, larger, more distant and overall less remote countries. Firm earn bigger revenues in markets where they set higher prices

Across firm within a product Stylized facts Across firm within a product Exporters with more destinations offer a wider range of export prices Firms that exports more, enter more markets, offer a wider range of exports prices and pay a wider range of input prices and source inputs from more origins countries.

DATA Data on Chinese firms that participated in international trade over the 2003-2005 period. Four destination-county characteristics : market size, income, bilateral distance from China, and overall remoteness. Three indicators for quality differentiation : Rauch, measures of R&D intensity, combined advertising and R&D intensity.

Empirical study : Export prices at the product level Correlation between export prices and countries characteristics within a product. Overall export price is higher in smaller, richer, more proximate and more central market.

Export prices across firms Study of the correlation between export prices and revenue across firms : δp = fixed effect εfp= cluster error by firm β = sign of correlation between export prices and revenue accross firm within a product Revenuefpd = bilateral export price and revenue of firm f selling product p in destination d.

Export prices and number of destinations : Pricefp = firm f’s average export price for product p #destinationfp = number of countries that buy p from f Sdfp(logpricefpd) = price dispersion (standard deviation)

Exporters that supply more countries charge higher average prices Firms selling to more destinations greater price dispersion accross importers . How prices move with the number of trade partners at the firm product level ?

Export prices across destinations within firms δfp = firm product pair fixed effect (role of product characteristics common to all firms + control for firm attribute) β = the variation of prices accross destinations within a given manufacturer and product line

Firm’s export prices and destinations characteristics Firms charge higher fob prices for the same product in bigger, richer, more disstant and less remote countries

Destination’s willingness to pay for quality and firm’s export price dispersion Market size, distance and remoteness increase firm prices relatively more in richer countries

Imported input prices and export performance Three aspects of exporter’s import activity : input prices, number of suppliers and input price dispersion accross source countries. sdfp = spread of prices that firms are willing to incur for a given product (standard deviation) Pricefpo = price that firm f pays for import product p form origin country o Export performance = total export worldwide, number of countries to which the firm ships, average export price accross product and destinations, standar deviation of export prices accross products and markets

Firm’s imported input prices and export performance Firms paying more for their input have consistently higher export prices, larger worlwilde export revenues and a bigger number of export destinations Firms paying a broader range of import prices for a given good export more to more markets at a higher average price.

Robustness : Empirical issues Measurement error Wholesalers and retailers Functional form for distance

Heterogeneous firm models Models that feature firm heterogeneity in production efficiency and product quality. Efficiency sorting (productivity) and quality sorting (select the quality of the product by choosing the quality of the inputs).

Efficiency and quality sorting with CES demand Efficiency sorting : more productive firms have lower marginal costs, lower export prices, sell higher quantities and earn larger revenue. Quality sorting : More productive firms always sell higher qualty goods

Efficiency and quality sorting with linear demand Efficiency sorting : firms set lower prices in bigger and more distant destinations Quality sorting : firms that produce better quality goods have set higher prices. Prices and revenue are correlated

Interpreting the stylized facts : quality differentiation accross firms Firms taht sell more abroad and that charge higher prices import more expensive inputs They are able to produce better quality goods. They face competition by reducing cost or improving quality.

Interpreting the stylized facts : quality differenciation accross destinations within firms Strategies that reduce quality adjusted price for the product Incentives to upgrade quality

Interpreting the stylized facts : alternative explanations Firms could charge higher mark ups because of cost of transportation => it does not explain the positive correlation with export prices and revenue. Specific demand shocks could explain the positive correlation between sales and unit va=> this explanation does not explain the higher prices exporters charge in richer, bigger, more distant and less remote countries.

Conclusion Findings that point to previously unexplored dimension of firm heterogeneity and adjustments on the quality margin within firm accross destinations Implications on growth and aggregate trade patterns. To go further…