Upcoming Seminars
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March 14, Hans-Martin Straume, BI Norwegian Business School
March 14, Hans-Martin Straume, BI Norwegian Business School
Dr. Hans-Martin Straume, Professor in the Campus Bergen Department of Economics at the BI Norwegian Business School
Presentation Title: Quantity versus Quality: Trade in Perishable Products and Economics of Scale
Abstract: Trade in time-sensitive products like perishable foods is subject to a quantity/quality trade-off when economics of scale is present in relation to trade costs. Bulk orders reduce costs but lead to lower experienced average quality due loss of freshness. This paper develops a model of international trade in time-sensitive products to investigate this trade-off. The model predicts that the order size margin determines quantity traded, while the order frequency margin determines experienced product quality. Pricing heterogeneity emerges due to differences in order sizes between buyers. Order frequency is primarily determined by quality considerations and is largely the same across consumers and markets. As such, variation in trade costs such as tariffs do not affect average experienced product quality. We evaluate the model on Norwegian exports of fresh and frozen seafood. We document a robust order size discount in the range of 1-12% for a twofold increase in order size. The marginal cost effect of perishability is estimated to be 1-27% depending on product and mode of transportation. Finally, using the Brexit referendum as an exogenous trade shock we provide evidence that exogenous variation in trade costs primarily affects trade through changes in order sizes, with little predicted effect on experienced product quality.
- March 28, Leah Palm-Forster, University of Delaware
