Firms’ Heterogeneity, Incomplete Information, and Pass-Through
نویسنده
چکیده
A large body of empirical work documents that prices of traded goods change by a smaller proportion than real exchange rates between the trading countries (incomplete pass-through). I present a Ricardian model of trade and international price-setting with heterogeneous firms, Bertrand competition and incomplete information. The model implies that: 1) firm-level passthrough is incomplete and a U-shaped function of firm market share; and 2) producers operating under incomplete information, like for example new entrants in a market, exhibit different passthrough rates than producers operating under complete information. Estimates from a panel data set of cars prices support the predictions of the model.
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