DP4568 Pricing to Firm: An Analysis of Firm- and Product-Level Import Prices

Author(s): László Halpern , Miklós Koren

Publication Date: August 2004

Keyword(s): import prices , price discrimination , pricing to firm

JEL(s): D43 , F14 , F23

Programme Areas: Institutions and Economic Performance , International Macroeconomics , Transition Economics

Link to this Page: www.cepr.org/pubs/dps/DP4568.asp

We use Hungarian Customs data on product-level imports and exports of manufacturing firms to document that the import price of a particular product varies substantially across buying firms. Importantly, we can relate the level of import prices to firm characteristics such as size, foreign ownership and market power. We develop a theory of ‘pricing to firm’ (PTF), where markups depend on the technology and competitive environment of the buyer. The predictions of the model are confirmed by the data: import prices are higher for firms with greater market power, and for intermediate inputs with a high share in material costs. We take account of the endogeneity of the buyer's market power with respect to higher import prices. We show that even if unobserved cost heterogeneity within product categories is substantial, it is uncorrelated with our variables of interest. The magnitude of PTF is big: the standard deviation of price predicted by PTF is 21.5%.