Collusion with Fluctuating Exchange Rates: A Note
AbstractA fluctuating exchange rate has an impact on how firms value a given stream of profits, thereby affecting the ability of an international oligopoly to collude implicitly. The conversion effect arises because the foreign firm maximizes its profits earned on the home market measured in foreign currency. The discount factor effect captures the fact that exchange rate fluctuations are connected with fluctuations in the interest rates, thereby changing the present value of future profits. Although each effect refers to only one of the firms, considered together they have an identical impact on the home and the foreign firm. If the foreign country is small, the conversion effect and the discount factor effect exactly offset each other. Otherwise, the effects analysed make collusion more difficult to sustain.
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Bibliographic InfoArticle provided by Taylor and Francis Journals in its journal International Journal of the Economics of Business.
Volume (Year): 11 (2004)
Issue (Month): 1 ()
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Find related papers by JEL classification:
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
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- Kai-Uwe Kühn, 2005. "Collusion Theory in Search of Robust Themes: A Comment on Switgard Feuerstein's Survey," Journal of Industry, Competition and Trade, Springer, vol. 5(3), pages 207-215, December.
- Switgard Feuerstein, 2005. "Collusion in Industrial Economics—A Survey," Journal of Industry, Competition and Trade, Springer, vol. 5(3), pages 163-198, December.
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