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Is “Three” a lucky number? Exchange-rate exposure in a “Rule of Three” model

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  • Andrikopoulos, Athanasios
  • Dassiou, Xeni

Abstract

We examine exchange-rate exposure in an international model of differentiated goods using the frequently encountered in international markets “Rule of Three” (RoT) market structure that allows both within and between countries competition. In a static setting the addition of a domestic competitor increases the exposure of both internationally competing firms relative to duopoly unless the exchange-rate pass-through of one of its rivals is elastic. Using a dynamic model, we study the intertemporal effects on the firms’ long-run exposure. The exposure gap between the RoT market and the international duopoly increases in the long run for the firm facing domestic competition. The long-run exposure of that firm can be higher or lower than its short-run exposure, while the foreign monopolist has a smaller long-run exposure.

Suggested Citation

  • Andrikopoulos, Athanasios & Dassiou, Xeni, 2020. "Is “Three” a lucky number? Exchange-rate exposure in a “Rule of Three” model," Journal of Business Research, Elsevier, vol. 121(C), pages 85-92.
    • Handle: RePEc:eee:jbrese:v:121:y:2020:i:c:p:85-92
    DOI: 10.1016/j.jbusres.2020.08.008
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    References listed on IDEAS

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    More about this item

    Keywords

    Rule of three market; Exchange-rate exposure; Switching costs; Short run; Long run;
    All these keywords.

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory

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