Exchange Rates and Product Variety
AbstractWe study the role of exchange rate variability in the firm's choice of whether to oÂ¤er one or two varieties. We show that variability induces the firm to vertically segment markets (offer two varieties). This happens because variability in the exchange rate aÂ¤ects income dispersion and hence the firm's incentives to extract consumer surplus. To better extract surplus, the firm offers two price-quality menus, a high quality variant geared for top-end surplus extraction and a low quality variant to address market coverage concerns.
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Bibliographic InfoPaper provided by Economic Research Southern Africa in its series Working Papers with number 60.
Length: 19 pages
Date of creation: 2007
Date of revision:
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More information through EDIRC
exchange rate variability; income dispersion; surplus extraction; product variety;
Other versions of this item:
- F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
- L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
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