Integrated versus segmented markets: Implications for export pricing and welfare

This paper challenges the common assumption of perfect market segmentation in models based on monopolistic competition. We develop a tractable approach to analyze export entry and pricing decisions of firms and show that the trade costs triangle condition (absence of potential re-exporting arbitrage) imposes constraints on firm-level export prices, which have first-order implications for trade and welfare. We provide empirical evidence that the triangle condition is violated in the data and quantify the importance of these violations in a general equilibrium setting.