How continuing exporters set the price? Theory and empirical evidence from China

Abstract

In this paper, we build a dynamic game model of quantity competition to explain the price difference between continuing exporters and exits. Continuing exports are forward looking and they may intentionally set a lower price in the export market at current stage to crowd out the competitors to maximize the overall expected profit in their total life period. Using a large sample of matched panel data of Chinese firms from firm-level production data and product-level trade data, we find that after controlling the most important determinants of export price as well as the firm-year-specific effects, continuing exporters charge a price 42.4%-54.0% lower than the price level charged by future exits in China