Price Discrimination Faced by Importers | Clausen Center

Price Discrimination Faced by Importers

by Sergii Meleshchuk

A majority of modern international trade models assume that all importers face the same price when they decide to buy the same good from the same provider. However, in the real world, finding and switching suppliers might be costly. Thus, exporters can have some market power that will be reflected in the prices of their products sold to different buyers. For example, providers might choose to price-discriminate their buyers based on the quantity of goods they buy. I explore this hypothesis using rich microdata from Colombia checking whether importers pay different price depending on the quantity they buy within narrowly defined provider-good combinations. Preliminary results indicate that the elasticity of price with respect to quantity lies in the range of -0.1 to -0.2. I develop and estimate theoretical model that features heterogeneity of prices across importers and study welfare implications of trade, as well as counterfactual changes caused by different policy experiments, such as reduction in tariffs or trade costs.