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Pricing to Market in Japanese Manufacturing

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  • Richard C. Marston
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    Abstract

    This paper investigates pricing by Japanese manufacturing firms in export and domestic markets. The paper reports equations explaining the margin between export prices in yen and domestic prices for a wide range of final goods including many of the electronic and transport products which have figured so prominently in recent trade discussions. Evidence is presented showing that Japanese firms respond to changes in real exchange rates by "pricing to market", varying their export prices in yen relative to their domestic prices. The empirical specification makes it possible to disentangle planned changes in the margin between export and domestic prices from inadvertent changes in this margin due to unanticipated changes in exchange rates. The degree of pricing to market varies widely across products, but there is strong evidence that pricing to market occurs. The paper also investigates whether pricing to market has increased in scale in the period since 1985 when the yen began a sustained appreciation, but finds that only five of seventeen products experienced a shift in price behavior over that period.

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    File URL: http://www.nber.org/papers/w2905.pdf
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    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2905.

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    Date of creation: Mar 1989
    Publication status: published as Journal of International Economics, Vol. 29, pp. 217-236, (1990).
    Handle: RePEc:nbr:nberwo:2905
    Note: ITI IFM
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    National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.

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    1. Giovannini, Alberto, 1988. "Exchange rates and traded goods prices," Journal of International Economics, Elsevier, vol. 24(1-2), pages 45-68, February.
    2. Feenstra, Robert C., 1989. "Symmetric pass-through of tariffs and exchange rates under imperfect competition: An empirical test," Journal of International Economics, Elsevier, vol. 27(1-2), pages 25-45, August.
    3. Froot, Kenneth A & Klemperer, Paul D, 1989. "Exchange Rate Pass-Through When Market Share Matters," American Economic Review, American Economic Association, vol. 79(4), pages 637-654, September.
    4. Lawrence Schembri, 1989. "Export Prices and Exchange Rates: An Industry Approach," NBER Chapters,in: Trade Policies for International Competitiveness, pages 185-216 National Bureau of Economic Research, Inc.
    5. Meese, Richard A. & Rogoff, Kenneth, 1983. "Empirical exchange rate models of the seventies : Do they fit out of sample?," Journal of International Economics, Elsevier, vol. 14(1-2), pages 3-24, February.
    6. Adler, Michael & Lehmann, Bruce, 1983. " Deviations from Purchasing Power Parity in the Long Run," Journal of Finance, American Finance Association, vol. 38(5), pages 1471-1487, December.
    7. Paul Krugman, 1986. "Pricing to Market when the Exchange Rate Changes," NBER Working Papers 1926, National Bureau of Economic Research, Inc.
    8. Richard Baldwin, 1988. "Some Empirical Evidence on Hysteresis in Aggregate US Import Prices," NBER Working Papers 2483, National Bureau of Economic Research, Inc.
    9. Catherine L. Mann, 1986. "Prices, profit margins, and exchange rates," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Jun, pages 366-379.
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    Cited by:

    1. Sapir, Andre & Sekkat, Khalid, 1995. "Exchange rate regimes and trade prices Does the EMS matter?," Journal of International Economics, Elsevier, vol. 38(1-2), pages 75-94, February.
    2. Richard C. Marston, 1990. "Price Behavior in Japanese and U.S. Manufacturing," NBER Working Papers 3364, National Bureau of Economic Research, Inc.
    3. Robert E. Lipsey & Linda Molinari & Irving B. Kravis, 1991. "Measures of Prices and Price Competitiveness in International Trade in Manufactured Goods," NBER Chapters,in: International Economic Transactions: Issues in Measurement and Empirical Research, pages 144-199 National Bureau of Economic Research, Inc.
    4. McKinnon, Ronald & Schnabl, Gunther, 2006. "Devaluing the dollar: A critical analysis of William Cline's case for a New Plaza Agreement," Journal of Policy Modeling, Elsevier, vol. 28(6), pages 683-694, September.
    5. Frederic S. Mishkin, 2008. "Exchange Rate Pass-Through And Monetary Policy," NBER Working Papers 13889, National Bureau of Economic Research, Inc.

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