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Pricing to market in international trade: evidence from panel data on automobiles and total merchandise

Author

Listed:
  • Joseph E. Gagnon
  • Michael M. Knetter

Abstract

This paper focuses on price discrimination in international trade that is associated with movements in exchange rates. This phenomenon is referred to as \\"pricing to market.\\" We find strong evidence of pricing to market for Japanese exports of automobiles. We find moderate evidence of such behavior for German auto exports, and very little pricing to market for U.S. auto exports. We conjecture that these sharp differences in export pricing behavior may be due to differences in the extent of overseas production by firms based in these countries. Pricing to market may be more important to firms that do not have plants in their target markets. ; The patterns observed for automobiles do not hold up for total merchandise exports, where pricing to market varies by both source and destination country. These differences in measured pricing to market may reflect differences in the product mix of trade by source and destination.

Suggested Citation

  • 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.), revised 1990.
  • Handle: RePEc:fip:fedgif:389
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    References listed on IDEAS

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    1. Kasa, Kenneth, 1992. "Adjustment costs and pricing-to-market theory and evidence," Journal of International Economics, Elsevier, vol. 32(1-2), pages 1-30, February.
    2. 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.
    3. Gagnon, Joseph E., 1989. "Adjustment costs and international trade dynamics," Journal of International Economics, Elsevier, vol. 26(3-4), pages 327-344, May.
    4. Robert C. Feenstra, 1988. "Quality Change Under Trade Restraints in Japanese Autos," The Quarterly Journal of Economics, Oxford University Press, vol. 103(1), pages 131-146.
    5. Baker, Jonathan B. & Bresnahan, Timothy F., 1988. "Estimating the residual demand curve facing a single firm," International Journal of Industrial Organization, Elsevier, vol. 6(3), pages 283-300.
    6. Sven W. Arndt & J. David Richardson, 1987. "Real-Financial Linkages Among Open Economies," NBER Working Papers 2230, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Yang, Jiawen, 1998. "Pricing-to-market in U.S. imports and exports: A time series and cross-sessional study," The Quarterly Review of Economics and Finance, Elsevier, vol. 38(4), pages 843-861.
    2. Yang, Jiawen, 1995. "Exchange rate pass-through in the U.S. market: A cross-country and cross-product investigation," International Review of Economics & Finance, Elsevier, vol. 4(4), pages 353-371.
    3. Feenstra, Robert C. & Gagnon, Joseph E. & Knetter, Michael M., 1996. "Market share and exchange rate pass-through in world automobile trade," Journal of International Economics, Elsevier, vol. 40(1-2), pages 187-207, February.
    4. Andrew M. Warner, 1992. "Import demand and supply with relatively few theoretical or empirical puzzles," International Finance Discussion Papers 433, Board of Governors of the Federal Reserve System (U.S.), revised 1992.
    5. Alexandr Knobel, 2010. "Factors of important Tariff Information," Research Paper Series, Gaidar Institute for Economic Policy, issue 143P.
    6. Yousefi, Ayoub & Wirjanto, Tony S., 2003. "Exchange rate of the US dollar and the J curve: the case of oil exporting countries," Energy Economics, Elsevier, vol. 25(6), pages 741-765, November.
    7. Ayoub Yousefi, 2000. "Merchandise Trade Balances of Less Developed Countries and Exchange Rate of the U.S. Dollar: Cases of Iran, Venezuela & Saudi Arabia," Working Papers 00002, University of Waterloo, Department of Economics, revised Feb 2000.
    8. Ketelsen, Uwe & Kortelainen, Mika, 1996. "The pass-through of exchange rate changes to import prices," Research Discussion Papers 26/1996, Bank of Finland.

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