Intransparent markets and intra-industry trade

Christian Gormsen ()

Documents de travail du Centre d'Economie de la Sorbonne from Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne

Abstract: Buyers are typically unaware of the full set of offers when making a purchase. This paper examines how international trade interacts with this problem of market intransparency. Sellers must communicate their offers through costly advertising, but cannot reach all buyers. Consequently, no market clearing price exists, and sellers randomize over an equilibrium price distribution. Sellers will wish to spread advertisement costs across markets, leading to international trade, which would not take place under complete information. Buyers then receive more offers, leading to lower prices and buyer surplus gains. Sellers in the model are identical, but appear heterogeneous due to their price randomization. If sellers differ slightly, these differences will be greatly magnified. Finally, the model rationalizes very infrequent exporters as firms offering disadvantageous, but profitable, deals to foreign buyers

Keywords: Advertising; intra-industry trade; firm heterogeneity; price dispersion (search for similar items in EconPapers)
JEL-codes: D43 D83 F12 M37 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2012-03
New Economics Papers: this item is included in nep-bec and nep-int
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http://mse.univ-paris1.fr/pub/mse/CES2012/12017.pdf (application/pdf)

Related works:
Working Paper: Intransparent Markets and Intra-Industry Trade (2012)
Working Paper: Intransparent Markets and Intra-Industry Trade (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:mse:cesdoc:12017

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