Border Prices and Retail Prices

Abstract

We analyze retail prices and at-the-dock (import) prices of speci…c items in the Bureau of Labor Statistics'(BLS) CPI and IPP databases, using both databases simultaneously to identify items that are identical in description at the dock and when sold at retail. This identi…cation allows us to measure the distribution wedge associated with bringing traded goods from the point of entry into the United States to their retail outlet. We …nd that overall U.S. distribution wedges are 50-70%, around 10 to 20 percentage points higher than that reported in the literature. We discuss the implications of this for measuring the size of the "pure" tradeables sector, exchange rate pass-through, and real exchange rate determination. We …nd that distribution wedges are very stable over time but there is considerable variation across items. There is some variation across the country of origin for the imported item, for our major trading partners, but not as much as the cross-item variation. We also investigate the determinants of distribution wedges, …nding that wedges do not vary systematically with exchange rates, but are related to other features of the micro data.

Goods-Market Frictions and International Trade

“…Second, trade flows are diminished because imports are computed using import prices (as opposed to final sales prices) and these negotiated import prices are lower than final sales prices. This is consistent with work by Berger et al (2012), who use prices for the same product to document that retail prices are 50 to 70 percent higher than at the dock. These lower import prices lead to the bundle of search friction parameters 1 − b (σ, θ, γ do , δ do , F do ), which is less than one, as shown in appendix B.5.…”

“…This ensures that the importer can at least cover their search costs and is consistent with the empirical findings of Berger, Faust, Rogers, and Steverson (2012). This pricing approach, among other model features, is similar to that of Drozd and Nosal (2012), who use a trade model with search frictions to account for several pricing puzzles of international macroeconomics.…”

Goods-Market Frictions and International Trade

“…In particular, the equilibrium import price paid by the retailer and negotiated with the exporting producer is lower than the final sales price paid by consumers. This ensures that the importer can at least cover their search costs and is consistent with the empirical findings of Berger, Faust, Rogers, and Steverson (2012). This pricing approach, among other model features, is similar to Drozd and Nosal (2012) who use a trade model with search frictions to account for several pricing puzzles of international macroeconomics.…”

Income-Induced Expenditure Switching

“…In contrast, macroeconomic data would require combining data on trade flows with household expenditure data, which would create multiple issues for the measurement of expenditures on domestic/foreign goods. One issue is that household expenditures are measured in final consumer prices and include domestic retail services, while trade flows are measured at the dock (Berger et al, 2009;Burstein et al, 2005). Another issue is that inventories can drive a wedge between final expenditures and trade flows, especially during sudden stop episodes (Alessandria et al, 2010).…”