International Economics Workshops
Network Effects and Dynamic Pricing in Export Markets
Magnus Buus (University of Copenhagen and UCL)
Wednesday 23 February 2022 11:00 - 12:00
This event is both online and in person32L 2.04, 2nd Floor Conference Room, LSE, 32 Lincoln's Inn Fields, London WC2A 3PH
About this event
This paper demonstrates that new exporters charge low prices in order to accumulate buyers, then increase prices as their network of buyers expands. I use a novel data set on firm-to-firm exports by Danish firms to document two empirical findings. First, exporters charge different prices from their buyers within narrowly defined markets. Second, exporters with larger buyer networks form more new buyer relationships. Based on these findings, I present a parsimonious dynamic model, where (i) exporters are able to price discriminate between buyers based on when their relationship is formed, and (ii) it is costly to find new buyers, but the cost is decreasing in the size of the network. The model predicts that exporters optimally increase prices as their network grows. Finally, I show that this prediction is in accordance with the data. The presence of network effects improves the benefits of trade policies aimed at matching exporters with foreign buyers and must be accounted for when evaluating such programs.
This event will take place in 32L 2.04, 2nd Floor Conference Room, LSE, 32 Lincoln's Inn Fields, London WC2A 3PH.The building is labelled 32L on the map. Enter the building via Lincoln's Inn Fields.
International Economics Workshops are part of the CEP's Trade programme.