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Market Share and Exchange Rate Pass-Through in World Automobile Trade

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  • Robert C. Feenstra
  • Joseph E. Gagnon
  • Michael M. Knetter

Abstract

This paper explores the relationship between exchange rate pass-through and market share for monopolistically competitive exporters. Under fairly general assumptions we show that pass-through should be high for exporters based in a country with a very large share of total destination market sales. For source countries with small and intermediate market shares, the theoretical relationship is potentially nonlinear and sensitive to assumptions about the nature of consumer demand and firm interactions. The model is estimated using a panel data set of automobile exports from France, Germany, Sweden, and the United States to a variety of destinations over the period 1970-1988. The empirical relationship between pass-through and market share is significantly non-linear: pass-through is the lowest when the source country's market share is around 45 percent and it is highest when the source country's share approaches 100 percent.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4399.

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Date of creation: Jul 1993
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Publication status: published as Journal of International Economics, vol. 40, no. 1-2, Feb. 1996, pp. 187-207
Handle: RePEc:nbr:nberwo:4399

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  1. Jaime Marquez, 1991. "The econometrics of elasticities or the elasticity of econometrics: an empirical analysis of the behavior of U.S. imports," International Finance Discussion Papers 396, Board of Governors of the Federal Reserve System (U.S.).
  2. Rudiger Dornbusch, 1985. "Exchange Rates and Prices," NBER Working Papers 1769, National Bureau of Economic Research, Inc.
  3. Goldberg, Pinelopi Koujianou, 1995. "Product Differentiation and Oligopoly in International Markets: The Case of the U.S. Automobile Industry," Econometrica, Econometric Society, vol. 63(4), pages 891-951, July.
  4. 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.
  5. Fisher, Eric, 1989. "A model of exchange rate pass-through," Journal of International Economics, Elsevier, vol. 26(1-2), pages 119-137, February.
  6. Marston, Richard C., 1990. "Pricing to market in Japanese manufacturing," Journal of International Economics, Elsevier, vol. 29(3-4), pages 217-236, November.
  7. Joseph E. Gagnon & Michael M. Knetter, 1990. "Pricing to market in international trade: evidence from panel data on automobiles and total merchandise," International Finance Discussion Papers 389, Board of Governors of the Federal Reserve System (U.S.).
  8. Mertens, Yves & Ginsburgh, Victor, 1985. "Product Differentiation and Price Discrimination in the European Community: The Case of Automobiles," Journal of Industrial Economics, Wiley Blackwell, vol. 34(2), pages 151-66, December.
  9. Lucrezia Reichlin & Jacques Le Cacheux, 1992. "Exchange rates and import prices: evidence of pricing to market in the European car market," ULB Institutional Repository 2013/10189, ULB -- Universite Libre de Bruxelles.
  10. 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.
  11. Victor Ginsburgh & Yves Mertens, 1985. "Product differentiation and discrimination in the European Community: the case of automobiles," ULB Institutional Repository 2013/1755, ULB -- Universite Libre de Bruxelles.
  12. Knetter, Michael M, 1989. "Price Discrimination by U.S. and German Exporters," American Economic Review, American Economic Association, vol. 79(1), pages 198-210, March.
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