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Export pricing strategy of Italian firms: from the depreciation of the lira to the euro

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  • Carlo Gola
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    Abstract

    In 1992 and 1995 Italy suffered two currency crisis, which were followed by a gradual recovery that ended with the entry of the lira in the single currency. The aim of this paper is to describe the export pricing strategy of Italian firms. To achieve this goal, a subset of 250 manufacturing firms (based in Northern Italy) out of the 1000 surveyed annually by the Bank of Italy was taken into account. By means of an additional questionnaire it was possible to collect information on a wide range of phenomena, such as the law of one price (LOP), the pass-through, and the pricing to market. Although a large part of the information is only qualitative, it would be appear that, while the 1992 devaluation induced firms to improve their competitiveness, the one that occurred in 1995 was used mainly to increase the mark up. The survey also shows that, in the long run, the LOP is followed only by 42 per cent of firms. Recently the convergence of the level of prices has increased amongst multinational firms and those producing intermediate goods. In February 2000, 45 per cent of firms were consistent with the LOP.

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    Bibliographic Info

    Paper provided by Cattaneo University (LIUC) in its series LIUC Papers in Economics with number 77.

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    Length: 35 pages
    Date of creation: Aug 2000
    Date of revision:
    Handle: RePEc:liu:liucec:77

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    1. Richard Baldwin, 1988. "Hysteresis In Import Prices: The Beachhead Effect," NBER Working Papers 2545, National Bureau of Economic Research, Inc.
    2. Prema-chandra Athukorala & Jayant Menon, 1992. "Pricing to Market Behaviour and Exchange Rate Pass-Through in Japanese Exports," Working Papers 1992.32, School of Economics, La Trobe University.
    3. Catherine Mann, 1989. "The effects of exchange rate trends and volatility on export prices: Industry examples from Japan, Germany, and the United States," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 125(3), pages 588-618, September.
    4. S.A.B. Page, 1981. "The Choice of Invoicing Currency in Merchandise Trade," National Institute Economic Review, National Institute of Economic and Social Research, vol. 98(1), pages 60-72, November.
    5. Prema-chandra Athukorala & Jayant Manon, 1994. "Exchange Rates and Strategic Pricing: the Case of Swedish Machinery Exports," Working Papers 1994.08, School of Economics, La Trobe University.
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    7. Baldwin, Richard, 1990. "Hysteresis in Trade," Empirical Economics, Springer, vol. 15(2), pages 127-42.
    8. Dixit, Avinash K, 1989. "Entry and Exit Decisions under Uncertainty," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 620-38, June.
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    10. Feenstra, Robert C., 1989. "Symmetric pass-through of tariffs and exchange rates under imperfect competition: An empirical test," Journal of International Economics, Elsevier, vol. 27(1-2), pages 25-45, August.
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    13. Paul Krugman, 1986. "Pricing to Market when the Exchange Rate Changes," NBER Working Papers 1926, National Bureau of Economic Research, Inc.
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    15. Froot, Kenneth A & Klemperer, Paul D, 1989. "Exchange Rate Pass-Through When Market Share Matters," American Economic Review, American Economic Association, vol. 79(4), pages 637-54, September.
    16. Rudiger Dornbusch, 1985. "Exchange Rates and Prices," NBER Working Papers 1769, National Bureau of Economic Research, Inc.
    17. Goldstein, Morris & Khan, Mohsin S., 1985. "Income and price effects in foreign trade," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 2, chapter 20, pages 1041-1105 Elsevier.
    18. Richard Baldwin, 1988. "Some Empirical Evidence on Hysteresis in Aggregate US Import Prices," NBER Working Papers 2483, National Bureau of Economic Research, Inc.
    19. Catherine L. Mann, 1986. "Prices, profit margins, and exchange rates," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Jun, pages 366-379.
    20. Bryan Boulier & Robert Goldfarb, 1998. "On the use and nonuse of surveys in economics," Journal of Economic Methodology, Taylor & Francis Journals, vol. 5(1), pages 1-21.
    21. Kasa, Kenneth, 1992. "Adjustment costs and pricing-to-market theory and evidence," Journal of International Economics, Elsevier, vol. 32(1-2), pages 1-30, February.
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