Pricing to Market in International Trade: Evidence from Panel Data on Automobiles and Total Merchandise

Abstract

This paper focuses on price discrimination in international trade that is associated with movements in exchange rates. This phenomenon is referred to as "pricing to market." We find strong evidence of pricing to market for Japanese exports of automobiles. We find moderate evidence of such behavior for German auto exports, and very little pricing to market for U.S. auto exports. We conjecture that these sharp differences in export pricing behavior may be due to differences in the extent of overseas production by firms based in these countries. Pricing to market may be more important to firms that do not have plants in their target markets.The patterns observed for automobiles do not hold up for total merchandise exports, where pricing to market varies by both source and destination country. These differences in measured pricing to market may reflect differences in the product mix of trade by source and destination.