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Journal Articles Journal of International Economics Year : 2018

Quality pricing-to-market

Raphaël Auer
  • Function : Author
Thomas Chaney
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  • PersonId : 1102039
  • IdRef : 200825801
Philip Sauré
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This paper analyzes firm's pricing-to-market decisions in vertically differentiated industries. We first present a model featuring firms that sell goods of heterogeneous quality levels to consumers who are heterogeneous in their income and thus their marginal willingness to pay for quality increments. We derive closed-form solutions for the unique pricing game under costly international trade. The comparative statics highlight how firms' pricing-to-market decisions are shaped by the interaction of consumer income and good quality. We derive two testable predictions. First, the relative price of high qualities compared to low qualities increases with the income of the destination market. Second, the rate of cost pass-through into consumer prices falls with quality if destination market income is sufficiently high. We present evidence in support of these two predictions based on a dataset of prices, sales, and product attributes in the European car industry.
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Dates and versions

hal-03260113 , version 1 (14-06-2021)



Raphaël Auer, Thomas Chaney, Philip Sauré. Quality pricing-to-market. Journal of International Economics, 2018, 110, pp.87 - 102. ⟨10.1016/j.jinteco.2017.11.003⟩. ⟨hal-03260113⟩
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