Stickiness, Synchronization, and Exchange Rate Passthrough in Intrafirm Trade Prices

Abstract

About forty percent of all U.S. international trades occurs between related parties, or intrafirm, such as trades between a parent and subsidiary of the same multinational corporation. Using a good-level dataset that distinguishes arm’s length from intrafirm trades, I demonstrate that for the set of differentiated products, intrafim prices are characterized by 1) less stickiness, 2) less synchronization, and 3) greater exchange rate passthrough. These differences emerge in a simulated dynamic model in which input exporters that are integrated, unlike arm’s length exporters, seek to maximize combined manufacturer and distributor profits.