for helpful comments. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research.

Data on transportation costs are difficult to obtain. In the absence of good data, many researchers have turned to indirect measures of transportation costs constructed using matched partner c.i.f./f.o.b. ratios from IMF and UN data. We investigate whether these data are usable, by comparing their levels and variation to directly measured transport costs for the US and New Zealand. We find that IMF c.i.f./f.o.b. ratios are badly error-ridden in levels, and contain no useful information for time-series or cross-commodity variation. However, the IMF data do appear to reveal some meaningful cross-exporter variation that might be usefully exploited by researchers. . We thank Russell Hillberry for helpful comments.

JEL Codes: O19 L9 R41 D23 Developing countries pay substantially higher transportation costs than developed nations, which leads to less trade and perhaps lower incomes. This paper investigates price discrimination in the shipping industry and the role it plays in determining transportation costs. In the presence of market power, shipping prices depend on the demand characteristics of goods being traded. We show theoretically and estimate empirically that ocean cargo carriers charge higher prices when transporting goods with higher product prices, lower import demand elasticities, and higher tariffs, and when facing fewer competitors on a trade route. These characteristics explain more variation in shipping prices than do conventional proxies such as distance, and significantly contribute to the higher shipping prices facing the developing world. A simple back of the envelope calculation suggests that eliminating market power in shipping would boost trade volumes by 5.9% (for the US) to 15.2% (for Latin America). Our findings are also important for evaluating the impact of tariff liberalization. Cargo carriers decrease shipping prices by 1-2% for every 1% reduction in tariffs.

We examine international markups and pricing in a generalized version of an "ideal variety" model. In this model, entry causes crowding in variety space, so that the marginal utility of new varieties falls as market size grows. Crowding is partially offset by income effects, as richer consumers will pay more for varieties closer matched to their ideal types. We show theoretically and confirm empirically that declining marginal utility of new varieties results in: a higher own-price elasticity of demand (and lower prices) in large countries and a lower own-price elasticity of demand (and higher prices) in rich countries. The model is also useful for generating facts from the literature regarding cross-country differences in the rate of variety expansion. Copyright (c) 2009 The Ohio State University.

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