American Economic Review: Vol. 102 No. 1 (February 2012)


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Understanding International Prices: Customers as Capital

Article Citation

Drozd, Lukasz A., and Jaromir B. Nosal. 2012. "Understanding International Prices: Customers as Capital." American Economic Review, 102(1): 364-95.

DOI: 10.1257/aer.102.1.364


The article develops a new theory of pricing to market driven by dynamic frictions of building market shares. Our key innovation is a capital theoretic model of marketing in which relations with customers are valuable. We discipline the introduced friction using data on differences between short-run and long-run price elasticity of international trade flows. We show that the model accounts for several pricing "puzzles" of international macroeconomics. (JEL E13, F14, F31, F41, F44, M31)

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Drozd, Lukasz A. (U PA)
Nosal, Jaromir B. (Columbia U)

JEL Classifications

E13: General Aggregative Models: Neoclassical
F14: Country and Industry Studies of Trade
F31: Foreign Exchange
F41: Open Economy Macroeconomics
F44: International Business Cycles
M31: Marketing

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