IDEAS home Printed from
   My bibliography  Save this article

The impact of exchange rate fluctuations on profit margins: The UK car market, 1971-2002



We investigate the impact on profit margins of exchange rate fluctuations in order to examine optimal pricing policy by source countries in the UK car market. We first estimate a nested logit demand model of new cars to calculate model-specific profit margins. Next we use these estimates to analyse the pricing-to-market (PTM) behaviour of car importers and local producers. The results show that: (1) profit margins fell over the period 1971-2002 as the UK car market moved from being a concentrated market to a looser oligopoly structure; (2) there is a positive association between exchange rate changes and mark-up adjustments of imported cars. Following a 10% pound depreciation, exporters' profit margins declined by up to 4% and local producers' profit margins increased by up to 2%; (3) PTM behaviour is asymmetric between appreciations and depreciations in bilateral exchange rates.

Suggested Citation

  • Francisco Requena-Silvente & James Walker, 2007. "The impact of exchange rate fluctuations on profit margins: The UK car market, 1971-2002," Journal of Applied Economics, Universidad del CEMA, vol. 10, pages 213-235, May.
  • Handle: RePEc:cem:jaecon:v:10:y:2007:n:1:p:213-235

    Download full text from publisher

    File URL:
    Download Restriction: no


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Sánchez Navarro, Dennis, 2013. "Análisis de elasticidades en el mercado automotor colombiano (2009 - 2011) mediante un modelo logit anidado
      [Analysis Of Elasticity In Colombian Automotive Market (2009 - 2011) Through A Nested Log
      ," MPRA Paper 46043, University Library of Munich, Germany.

    More about this item


    exchange rates; markup adjustment; pricing to market; cars;

    JEL classification:

    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
    • L6 - Industrial Organization - - Industry Studies: Manufacturing


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cem:jaecon:v:10:y:2007:n:1:p:213-235. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Valeria Dowding). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.