Markups, quality, and transport costs

This paper provides new evidence on trade prices based on firm-level data from France. It shows that firms charge higher free-on-board (net of transportation costs, hereafter noted as fob) unit values on exports to more distant countries. This finding holds within firms and products, and across destinations. The price premium paid by distant consumers is due to firms charging higher fob prices, and to higher transportation costs. A simple decomposition of the elasticity of import prices to distance shows that, after a fall in transport costs, almost 80% of the decline in import prices enjoyed by consumers is due to firms charging lower fob prices. This suggests a new channel through which changes in transport costs may affect welfare.

► French firm-level dataset used to examine the impact of distance on export prices. ► Firms charge higher free-on-board prices on exports to more distant countries. ► The implied elasticity of import prices with respect to distance is 0.06. ► After trade facilitation, 80% of import prices' decline due to lower fob prices. ► New channel through which consumers gain from trade facilitation.