Abstract

References (39)

Beta

Citations (4)

Beta

Download | Share | Email | Add to Briefcase | Buy Hard Copy

Pricing-to-Market: Price Discrimination or Product Differentiation?

Nathalie Lavoie
University of Massachusetts at Amherst - College of Natural Resources & the Environment - Department of Resource Economics

Qihong Liu
University of Oklahoma - Department of Economics

August 2006

Abstract:
We employ a vertical differentiation model to examine the potential bias in pricing-to-market (PTM) results when using unit values aggregating differentiated products. Our results show that: i) false evidence of PTM ("pseudo PTM") is always found when using unit values, whether the law of one price holds or not; and ii) the extent to which results are biased due to pseudo PTM increases with the level of product differentiation. Correspondingly, our simulation results suggest that: i) it is possible to get a statistically significant estimate of the exchange rate coefficient, even when there is no real PTM; ii) the probability of a false PTM finding increases with product differentiation. Pseudo PTM is the result of a change in the mix of qualities imported when the exchange rate changes.

Keywords: Pricing-to-market, Vertical differentiation, Unit values, Price discrimination, Quality upgrading

JEL Classifications: D42, F10, L12

Working Paper Series

Date posted: November 24, 2004 ; Last revised: October 27, 2006

Suggested Citation

Lavoie, Nathalie and Liu, Qihong , Pricing-to-Market: Price Discrimination or Product Differentiation? (August 2006). Available at SSRN: http://ssrn.com/abstract=622986

Export to: Export Citation What's this?

Contact Information

Nathalie Lavoie (Contact Author) University of Massachusetts at Amherst - College of Natural Resources & the Environment - Department of Resource Economics ( email ) Stockbridge Hall 80 Campus Center Way Amherst, MA 01003-9246 United States 413-545-5713 (Phone) 413-545-5853 (Fax)
Qihong Liu University of Oklahoma - Department of Economics ( email ) 729 Elm Avenue Norman, OK 73019-2103 United States 405-325-5846 (Phone) 405-325-5842 (Fax)