Price dispersion and the stability of trade*
Peer reviewed, Journal article
Accepted version
Permanent lenke
https://hdl.handle.net/11250/3110433Utgivelsesdato
2023-02-02Metadata
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Originalversjon
Øglend, A., Asche, F., Pincinato, R.B., Straume, H-M. (2023) Price dispersion and the stability of trade*. The Scandinavian Journal of Economics, 125 (3), 789-820. 10.1111/sjoe.12526Sammendrag
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.