Pricing-to-Market: Evidence From Plant-Level Prices, Review of Economic Studies, forthcoming

We document pricing-to-market by producers who sell the same product to buyers in two markets that are segmented by variable exchange rates. We can cleanly identify desired relative markup responses to exchange rate movements because we observe prices charged by the same plant for the same product to buyers from the two different markets at a monthly frequency. The matched price quotes allow us to use fixed effects to control for unobserved marginal cost changes. The high frequency allows us to focus only on episodes where prices change, hence separating out desired markup variation from the default behavior of relative markups due to price stickiness. For prices invoiced in destination currency, we find that desired relative markups move one-for-one with exchange rate changes. This implies that producers invoicing in destination currency engage in an extreme form of pricing-to-market, with relative markups inheriting the random walk behavior of exchange rates. JEL Classification: F31, F41, L11, L16 ∗This work makes use of data from the Central Statistics Office, Ireland, which is CSO copyright. Th