Hitotsubashi Institute for Advanced Study


Nonlinear Pricing in the Transport Industry and the Gains from Trade


Recent empirical research documented that there exists a nonlinear pricing phenomenon in the shipping industry. This paper strives to show how this empirical regularity would alter conventional results in trade literature. This paper also shows that when nonlinear pricing in the shipping industry is considered, while the average productivity is higher conducive to the higher welfare level, the gains from trade are generally lower than the situation without. In addition, the model built in this paper offers micro foundations for the additive trade cost and features an endogenous response of shipping charges to the iceberg trade cost, an empirical finding emphasized in Hummels et al. (2009). In a much broader sense, this paper argues that the heterogeneous firm model offers a lens through which traditional results on some interesting objects, for example, gains from trade, could be altered.

Report No.: HIAS-E-112
Author(s): Han Zheng (a), Daisuke Fujii (b)
Affiliation: (a) Hitotsubashi Institute for Advanced Study, Hitotsubashi University, (b) The University of Tokyo
Issued Date: September 2021
Keywords: Nonlinear pricing, Shipping industry, Heterogeneous firms, The gains from trade
JEL: F12, F14, L25, L91, R41