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Demand complementarities and cross‐country price differences

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  • Daniel Murphy
Abstract
Empirical studies document that markups vary across destinations. This paper proposes a novel mechanism to explain variation in markups: consumers’ utility from final goods and services depends on their consumption of complementary goods and services. In countries with more complementary goods and services, consumer demand is less elastic, enabling monopolistically competitive firms to charge higher prices. The paper provides empirical evidence documenting a dependence of prices on demand complementarities. Complémentarités dans la demande et différences de prix entre pays. Des études empiriques documentent que les marges bénéficiaires varient selon les destinations. Ce texte propose un mécanisme inédit pour expliquer la variation dans les marges bénéficiaires. L’utilité que les consommateurs tirent des biens et services finaux dépend de la consommation de biens et services complémentaires. Dans les pays où il y a davantage de biens et services complémentaires, la demande est moins élastique, ce qui permet aux firmes en situation de concurrence monopolistique d’imposer des prix plus élevés. Le texte fournit des résultats empiriques qui établissent la dépendance des prix sur l’existence de biens et services complémentaires à la demande du bien en question.

Suggested Citation

  • Daniel Murphy, 2019. "Demand complementarities and cross‐country price differences," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 52(1), pages 253-278, February.
    • Handle: RePEc:wly:canjec:v:52:y:2019:i:1:p:253-278
    DOI: 10.1111/caje.12371
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    References listed on IDEAS

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    Cited by:

    1. Auerbach, Alan J. & Gorodnichenko, Yuriy & Murphy, Daniel, 2021. "Inequality, fiscal policy and COVID19 restrictions in a demand-determined economy," European Economic Review, Elsevier, vol. 137(C).

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