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Increased market access through trade liberalization can affect the markups, prices, and marginal costs of exporters. Understanding these dynamics is critical for firms and policymakers, particularly as they formulate export strategies. We examine the impact of China lowering tariffs on Pakistani products under the Pakistan–China Free Trade Agreement (FTA), which gave Pakistani exporters greater market access. Using disaggregated output and price data for textile manufacturers in Punjab, Pakistan, we estimate product-level markups and marginal costs using the methodology of De Loecker, Goldberg, Khandelwal, and Pavcnik (2016) ["Prices, Markups, and Trade Reform." Economterica 84 (2): 445–510]. We then extend this to the firm level by using the methodology of De Loecker and Warzynsksi (2012) ["Markups and Firm-Level Export Status." American Economic Review, 2437–2471]. We find that Pakistani firms exporting to China followed a dynamic pricing strategy by reducing prices to compete with global competitors in the Chinese market. We also find evidence of a decrease in marginal costs as a result of reductions in X-inefficiencies. But because Pakistan's exports to China are relatively homogeneous, the extent of quality differentiation and markup margins was limited. Finally, we find evidence of pro-competitive effects. [ABSTRACT FROM AUTHOR]

Researchers typically invoke theoretical assumptions to estimate mark-ups. Instead, we directly obtain mark-ups by surveying Pakistani soccer-ball producers. We document six facts: (i) Mark-ups are more dispersed than costs; (ii) Mark-ups and costs increase with firm size; (iii) The mark-up elasticity with respect to size exceeds the cost elasticity; (iv) Costs increase with size because larger firms use higher-quality inputs; (v) Larger firms charge higher mark-ups because they have higher production shares of high-quality balls that carry higher mark-ups, and because they charge higher mark-ups conditional on ball type; (vi) Correlations suggest marketing efforts are important for generating higher mark-ups. [ABSTRACT FROM AUTHOR]