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Pricing to market in the Krugman model

Author

Listed:
  • Paolo Bertoletti

    (Pavia University)

  • Federico Etro

    (University of Venice Ca'' Foscari)

Abstract
We examine the role of per capita income in closed and open economy models of monopolistic competition based on non-homothetic directly additive preferences à la Dixit-Stiglitz, as in Krugman (1979). In a closed economy with free entry income is always neutral on markups and firm size. In a two-country trade model without transport costs, markups are higher in the country with higher income if the elasticity of substitution is decreasing in consumption. Pricing to market also emerges with transport costs.

Suggested Citation

  • Paolo Bertoletti & Federico Etro, 2014. "Pricing to market in the Krugman model," Economics Bulletin, AccessEcon, vol. 34(1), pages 459-468.
    • Handle: RePEc:ebl:ecbull:eb-13-00857
    as

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    References listed on IDEAS

    as
    1. Krugman, Paul, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, American Economic Association, vol. 70(5), pages 950-959, December.
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    7. Krugman, Paul R., 1979. "Increasing returns, monopolistic competition, and international trade," Journal of International Economics, Elsevier, vol. 9(4), pages 469-479, November.
    8. Paul Krugman, 1986. "Pricing to Market when the Exchange Rate Changes," NBER Working Papers 1926, National Bureau of Economic Research, Inc.
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    More about this item

    Keywords

    Pricing to market; Krugman model; Dixit-Stiglitz model;
    All these keywords.

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • F1 - International Economics - - Trade

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