Work

Price dispersion and the stability of trade*

Year: 2023

Type: article

Abstract: Research on trade relationships has documented a high rate of relationship breakup and churning. We use data on Norwegian exports to document two stylized facts about the stability of trade relationships. First, the probability of relationship breakup increases in the deviation of the relationship‐specific price from a reference price. Second, relationship hazards follow Zipf's law. We propose a search model with limited information and search frictions to explain these facts. Reference prices provide information on outside trade options that inform optimal breakups, leading to the first stylized fact. Strong heterogeneity in breakup frictions across relationships can explain the Zipf's law hazards.

Source: Scandinavian Journal of Economics

DOI: 10.1111/sjoe.12526

Authors: Atle Oglend, Frank Asche, Ruth Beatriz Mezzalira Pincinato, Hans‐Martin Straume

Institutions: University of Stavanger, University of Florida, BI Norwegian Business School

Language: English

Topic: Global trade and economics

Subfield: General Economics, Econometrics and Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: bronze

Funder: Norges Forskningsråd

Award: G355344730