Pricing-to-Market: Evidence From Plant-Level Prices

D. Fitzgerald, S. Haller
2013 The Review of Economic Studies  
We use micro data on Irish producer prices to provide clean evidence on pricing-tomarket across a broad range of manufacturing sectors. We have monthly observations on prices charged by the same plant for the same product to buyers in Ireland and the UK, two markets segmented by variable exchange rates. Assuming that relative marginal cost is constant across markets within a plant and a product, this allows us to observe the behavior of the markup in the UK market relative to the home market.
more » ... the home market. To identify pricing-to-market that goes beyond what is mechanically due to price stickiness, we condition on episodes where prices change. When prices are invoiced in local currency, conditional on prices changing, the ratio of the markup in the foreign market to the markup in the home market increases one-for-one with depreciations of home against foreign currency and decreases one-for-one with appreciations of home against foreign currency, a very particular form of pricing-to-market. JEL Classification: F31, F41, L11, L16 * This work makes use of data from the Central Statistics Office, Ireland, which is CSO copyright. The possibility for controlled access to confidential micro data sets on the premises of the CSO is provided for in the Statistics Act 1993. The use of CSO data in this work does not imply the endorsement of the CSO in relation to the interpretation or analysis of the data. This work uses research datasets which may not exactly reproduce statistical aggregates published by the CSO. We thank the staff of the CSO for making this project possible. Stefanie Haller is grateful for financial support for this research from the Irish Research Council for the Humanities and Social Sciences. Doireann Fitzgerald is grateful for financial support from the NSF under grant number 0647850. We are grateful to Manuel Amador, Ariel Burstein, Nir Jaimovich, Pete Klenow and to seminar participants at the ESRI, CAED-Budapest, Stanford and the NBER Summer Institute for helpful comments and suggestions. All remaining errors and omissions are our responsibility.
doi:10.1093/restud/rdt045 fatcat:ttfbytrknngabpxiggnizkyepa