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Is Price Adjustment Asymmetric?: Evaluating the Market Share and Marketing Bottlenecks Hypothesis

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  • Michael M. Knetter

Abstract

The theoretical literature on pricing-to-market has identified two possible reasons why the elasticity of prices to exchange rate changes may be asymmetric across appreciations and depreciations. If firms are attempting to increase market shares in foreign markets subject to the possibility of trade restrictions, then more pricing-to-market may occur during appreciations of the exporter's currency. If firms face capacity constraints in their distribution networks, then pricing-to-market may be exaggerated during periods of depreciation of the exporters currency. This paper uses panel data on German and Japanese 7-digit industry exports to compare these competing explanations for asymmetries in pricing-to-market behavior. While the data seldom reject the null hypothesis of a symmetric response of prices to exchange rates, some industries, notably automobiles, provide empirical support for the market share model. Only a pooled regression with Japanese data supports the marketing bottlenecks model.

Suggested Citation

  • Michael M. Knetter, 1992. "Is Price Adjustment Asymmetric?: Evaluating the Market Share and Marketing Bottlenecks Hypothesis," NBER Working Papers 4170, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:4170
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    1. Poornima Varma & Akash Issar, 2016. "Pricing to market behaviour of India's high value agri-food exporters: an empirical analysis of major destination markets," Agricultural Economics, International Association of Agricultural Economists, vol. 47(1), pages 129-137, January.
    2. Varma, Poornima & Issar Akash, 2017. "India's Horticulture Sector - A Port- Level Analysis of Onion Export Pricing," IIMA Working Papers WP2017-03-01, Indian Institute of Management Ahmedabad, Research and Publication Department.
    3. Cédric Durand & Antonia Lòpez-Villavicencio, 2011. "On the link between distribution's margins and exchange rates: the role of globalization," Working Papers hal-00611862, HAL.
    4. Arslan Razmi, 2005. "The Contractionary Short-Run Effects of Nominal Devaluation in Developing Countries: Some Neglected Nuances," UMASS Amherst Economics Working Papers 2005-09, University of Massachusetts Amherst, Department of Economics, revised Sep 2006.
    5. Ioanna C. Bardakas, 2013. "The asymmetric effect of income on import demand in Greece," Working Papers 159, Bank of Greece.
    6. Dominique Gross & Nicolas Schmitt, 1996. "Exchange rate pass-through and rivalry in the Swiss automobile market," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 132(2), pages 278-303, September.
    7. Morisset, Jacques, 1997. "Unfair trade? Empirical evidence in world commodity markets over te past 25 years," Policy Research Working Paper Series 1815, The World Bank.

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