Learning, prices and firm dynamics

Bastos, Paulo; Dias, Daniel A.; Timoshenko, Olga A.

doi:10.1111/caje.12361

Cited by 20 publications

(18 citation statements)

References 71 publications

(161 reference statements)

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“…An alternative mechanism would be to allow sales to grow through continual productivity improvements (e.g., Arkolakis, ) or learning‐by‐doing (Bastos et al., ). We do not suggest that these mechanisms may not be important, particularly in the Chinese context.…”

Section: Discussionmentioning

confidence: 99%

Price, Product Quality, and Exporter Dynamics: Evidence From China

Rodrigue

Tan

2019

Int Economic Review

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This article develops a model of heterogeneous firms that endogenously choose prices and product quality to build demand in export markets. New exporters optimally charge relatively low prices and produce low‐quality goods upon entry. Product quality, prices, and sales increase as demand grows. We structurally estimate model parameters using Chinese customs data. The estimated incentive to build future demand reduces average export prices by 0.7% and increases export sales by 4% upon entry. Endogenous demand accumulation causes estimated export prices, product quality, and sales to grow by 2.2%, 12%, and 79%, respectively, over the following five years.

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Section: Discussionmentioning

confidence: 99%

Price, Product Quality, and Exporter Dynamics: Evidence From China

Rodrigue

Tan

2019

Int Economic Review

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“…subject to (7), the accumulation equation for D, (8), the cost of investment, and (9), the updating of information, which includes the process for N ik t as a function of lagged participation.…”

Section: Model Descriptionmentioning

confidence: 99%

“…Being informed is an absorbing state. The probability of transitioning from being uninformed to informed governs the speed of learning, which does not depend on the process for idiosyncratic demand 8. This model shares many of the features of Eaton et al (2014) but does not require transaction-level data to estimate.…”

mentioning

confidence: 92%

“…They face constant price elasticity of demand, and current prices do not affect future demand, so markups are constant. 8 This model has the ability to match qualitatively all the facts we document. The combination of learning about idiosyncratic demand and price setting generates a positive correlation between initial quantities and survival conditional on marginal cost, but no relationship between initial prices and survival.…”

Section: Introductionmentioning

confidence: 99%

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How Exporters Grow

Fitzgerald

Haller²,

Yedid‐Levi³

2016

Preprint

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We document how export quantities and prices evolve after entry to a market. Controlling for marginal cost, and taking account of selection on idiosyncratic demand, there are economically and statistically significant dynamics of quantities, but no dynamics of prices. To match these facts, we estimate a model where firms invest in customer base through non-price actions (e.g. marketing and advertising), and learn gradually about their idiosyncratic demand. The model matches quantity, price and exit moments. Parameter estimates imply costs of adjusting investment in customer base, and slow learning about demand, both of which generate sluggish responses of sales to shocks.

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“…His is a static model where firms can shift their current demand (the price elasticity of demand is unaffected) by making within-period marketing and advertising expenditures, with decreasing returns. 6 We generalize this model by assuming that expenditures on marketing increase customer base, which need not depreciate fully between one period and the next. Customer base in turn shifts demand.…”

Section: Two Models Of Customer Base Accumulationmentioning

confidence: 99%

How Exporters Grow

Fitzgerald¹,

Haller²,

Yedid‐Levi

2016

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We show that in successful episodes of export market entry, there are statistically and economically significant post-entry dynamics of quantities, but no post-entry dynamics of markups. This suggests that shifts in demand play an important role in successful entry, but that firms do not use dynamic manipulation of markups as an instrument to shift demand. We structurally estimate two competing models of customer base accumulation to match these moments. In the first model, firms use marketing and advertising to acquire new customers and thereby shift demand and increase sales. In the second, they use temporarily low markups to do so. The marketing and advertising model fits the quantity and markup moments well, and implies that successful entry is associated with high selling expenses. The second model cannot simultaneously fit quantity and markup moments, even with a counterfactually high price elasticity of demand and trade elasticity. We conclude that successful market entry is more likely to be associated with high selling expenses than low markups.

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Learning, prices and firm dynamics

Cited by 20 publications

References 71 publications

Price, Product Quality, and Exporter Dynamics: Evidence From China

Price, Product Quality, and Exporter Dynamics: Evidence From China

How Exporters Grow

How Exporters Grow

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