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

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 set a lower price at current stage to crowd out the competitors to maximize their overall expected profit. Using a large sample of matched panel data of Chinese firms, we find that after controlling the most important determinants of export price and the firm-year-specific effects, continuing exporters charge a price 39.2%-41.6% lower than the price level charged by future exits in China.