Product Market Integration and Heterogeneity Rent Sharing and Pricing to Market

17 Pages Posted: 2 Apr 2008

See all articles by Torben M. Andersen

Torben M. Andersen

University of Aarhus - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics

Allan Sørensen

Aarhus University

Abstract

International product market integration makes market penetration easier and therefore creates both export opportunities and import threats. This changes the competitive position of firms and is associated with changes in trade, production, and specialization structures. The gains and losses in this process are unlikely to be equally shared due to heterogeneity across firms/sectors. In a Ricardian trade model with heterogeneity across firms, we find pricing to market effects not only for exports, but also for pricing in the domestic market even for non-tradables. Rents to be shared in wage bargaining differ across tradables and non-tradables. It is shown that lower trade frictions affect the scope for pricing to market and cause wages to become more closely driven by (relative) productivity. Labor market prospects tend not to improve for low wage jobs, and not to deteriorate for high wage jobs.

Suggested Citation

Andersen, Torben M. and Sørensen, Allan, Product Market Integration and Heterogeneity Rent Sharing and Pricing to Market. Review of International Economics, Vol. 16, Issue 2, pp. 268-284, May 2008, Available at SSRN: https://ssrn.com/abstract=1115540 or http://dx.doi.org/10.1111/j.1467-9396.2007.00708.x

Torben M. Andersen (Contact Author)

University of Aarhus - Department of Economics ( email )

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Centre for Economic Policy Research (CEPR)

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IZA Institute of Labor Economics

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Allan Sørensen

Aarhus University ( email )

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