Sub-National Differentiation and the Role of the Firm in Optimal International Pricing

38 Pages Posted: 27 Jun 2007 Last revised: 17 Aug 2007

See all articles by Edward J. Balistreri

Edward J. Balistreri

Iowa State University

James R. Markusen

University of Colorado at Boulder - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Date Written: May 2007

Abstract

We illuminate the relationship between optimal firm pricing and optimal trade policy by exploring a generalized model that accommodates product differentiation at both the national and sub-national (firm) levels. We assume monopolistic competition in the differentiated products at the sub-national level. When the national and sub-national substitution elasticities are similar we find little opportunity for small countries to improve their terms of trade through trade distortions, because firms play an important preemptive role in optimally pricing unique varieties. We contrast this with standard applications of perfect-competition Armington models, which exhibit high optimal tariffs--even for relatively small countries.

Suggested Citation

Balistreri, Edward J. and Markusen, James R., Sub-National Differentiation and the Role of the Firm in Optimal International Pricing (May 2007). NBER Working Paper No. w13130. Available at SSRN: https://ssrn.com/abstract=988940

Edward J. Balistreri

Iowa State University ( email )

260 Heady Hall
Ames, IA 50011
United States
3032531674 (Phone)

James R. Markusen (Contact Author)

University of Colorado at Boulder - Department of Economics ( email )

Campus Box 256
Boulder, CO 80309
United States
303-492-0748 (Phone)
303-492-8960 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
21
Abstract Views
289
PlumX Metrics