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Collusion with Fluctuating Exchange Rates: A Note

Author

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  • Switgard Feuerstein

Abstract

A fluctuating exchange rate has an impact on how firms value a given stream of profits, thereby affecting the ability of an international oligopoly to collude implicitly. The conversion effect arises because the foreign firm maximizes its profits earned on the home market measured in foreign currency. The discount factor effect captures the fact that exchange rate fluctuations are connected with fluctuations in the interest rates, thereby changing the present value of future profits. Although each effect refers to only one of the firms, considered together they have an identical impact on the home and the foreign firm. If the foreign country is small, the conversion effect and the discount factor effect exactly offset each other. Otherwise, the effects analysed make collusion more difficult to sustain.

Suggested Citation

  • Switgard Feuerstein, 2004. "Collusion with Fluctuating Exchange Rates: A Note," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 11(1), pages 107-116.
  • Handle: RePEc:taf:ijecbs:v:11:y:2004:i:1:p:107-116
    DOI: 10.1080/1357151032000172264
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    Citations

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    Cited by:

    1. Switgard Feuerstein, 2005. "Collusion in Industrial Economics—A Survey," Journal of Industry, Competition and Trade, Springer, vol. 5(3), pages 163-198, December.
    2. Kai-Uwe Kühn, 2005. "Collusion Theory in Search of Robust Themes: A Comment on Switgard Feuerstein's Survey," Journal of Industry, Competition and Trade, Springer, vol. 5(3), pages 207-215, December.

    More about this item

    Keywords

    Implicit Collusion; International Oligopoly; Fluctuating Exchange Rate; D43; F12; L13;

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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