How does trade policy affect competition? Using the universe of product exports by firms from eleven low and middle-income countries, we document that tariff reductions under trade agreements have strong procompetitive effects - they encourage entry and reduce the (tariff exclusive) price-cost markups of exporters. This finding, that markups fall with tariff cuts, contradicts a core prediction of standard oligopolistic competition models of trade. We extend a classic international pricing model of oligopolistic competition to include multiple countries and a rich preference structure.
Invoicing and the Dynamics of Pricing-to-market - Evidence from UK Export Prices around the Brexit Referendum
We provide micro-econometric evidence that, following the large and persistent sterling depreciation after the Brexit referendum, on impact, exchange rate pass-through (ERPT) was complete for transactions invoiced in producer currency and low for sales invoiced either in a vehicle or in the destination market currency. Yet these differences strikingly narrowed within six quarters. A weaker currency did not translate into a persistent gain in price competitiveness for UK exports.