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

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Author Info
Carlo Gola
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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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
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Handle: RePEc:liu:liucec:77

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  3. Paul Krugman, 1986. "Pricing to Market when the Exchange Rate Changes," NBER Working Papers 1926, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. 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. [Downloadable!] (restricted)
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  5. 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. [Downloadable!] (restricted)
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  6. Caterina Colombo, 1987. "Exchange Rate and Prices: Firms' Behaviour in the Open Economy," Working Papers 37, Dipartimento Scienze Economiche, Universita' di Bologna.
  7. Baldwin, Richard, 1990. "Hysteresis in Trade," Empirical Economics, Springer, vol. 15(2), pages 127-42.
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  9. Aliber, Robert Z, 1976. " The Firm under Pegged and Floating Exchange Rates," Scandinavian Journal of Economics, Blackwell Publishing, vol. 78(2), pages 309-22.
  10. Menon, Jayant, 1995. " Exchange Rate Pass-Through," Journal of Economic Surveys, Blackwell Publishing, vol. 9(2), pages 197-231, June.
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  12. Athukorala, Premachandra & Menon, Jayant, 1994. "Pricing to Market Behaviour and Exchange Rate Pass-Through in Japanese Exports," Economic Journal, Royal Economic Society, vol. 104(423), pages 271-81, March. [Downloadable!] (restricted)
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  14. Richard Baldwin, 1988. "Hysteresis In Import Prices: The Beachhead Effect," NBER Working Papers 2545, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  15. Athukorala, Premachandra & Menon, Jayant, 1995. "Exchange Rates and Strategic Pricing: The Case of Swedish Machinery Exports," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 57(4), pages 533-46, November.
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  16. Kravis, Irving B. & Lipsey, Robert E., 1978. "Price behavior in the light of balance of payments theories," Journal of International Economics, Elsevier, vol. 8(2), pages 193-246, May. [Downloadable!] (restricted)
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  17. Richard Baldwin, 1988. "Some Empirical Evidence on Hysteresis in Aggregate US Import Prices," NBER Working Papers 2483, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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