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Pricing Of Exports And Exchange Rate Uncertainty

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  • DONNENFELD, S.
  • ZILCHA, I.

Abstract

This paper examines the implications of different pricing-cum-invoicing strategies available to an exporting firm that sells its product in domestic and foreign markets when the exchange rate is uncertain. The firms' decisions are made sequentially. Throughout the decision-making process, the firm receives new information about the distribution of the random exchange rate. The information arrives after output decisions have been made, but before setting prices and allocating sales. The authors state conditions that lead to the dominance of invoicing exports in the importer's currency over the alternative invoicing strategies. Copyright 1991 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.
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Suggested Citation

  • Donnenfeld, S. & Zilcha, I., 1989. "Pricing Of Exports And Exchange Rate Uncertainty," Papers 12-89, Tel Aviv.
  • Handle: RePEc:fth:teavfo:12-89
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    References listed on IDEAS

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    1. Grossman, Gene M & Helpman, Elhanan, 1989. "Product Development and International Trade," Journal of Political Economy, University of Chicago Press, vol. 97(6), pages 1261-1283, December.
    2. Krugman, Paul, 1979. "A Model of Innovation, Technology Transfer, and the World Distribution of Income," Journal of Political Economy, University of Chicago Press, vol. 87(2), pages 253-266, April.
    3. Romer, Paul M, 1990. "Endogenous Technological Change," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 71-102, October.
    4. Raymond Vernon, 1966. "International Investment and International Trade in the Product Cycle," The Quarterly Journal of Economics, Oxford University Press, vol. 80(2), pages 190-207.
    5. Segerstrom, Paul S & Anant, T C A & Dinopoulos, Elias, 1990. "A Schumpeterian Model of the Product Life Cycle," American Economic Review, American Economic Association, vol. 80(5), pages 1077-1091, December.
    6. Jensen, Richard & Thursby, Marie, 1986. "A strategic approach to the product life cycle," Journal of International Economics, Elsevier, vol. 21(3-4), pages 269-284, November.
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    Keywords

    pricing ; exchange rate ; uncertainty ; exports;

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