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Pricing in International Markets: Lessons From The Economist

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  • Atish R. Ghosh
  • Holger C. Wolf

Abstract

Export firms are often assumed to stabilize destination market prices in the face of nominal exchange rate changes in order to protect market share. We show that standard tests of such pricing to market fail to discriminate against the alternative hypothesis of menu costs. As a case study, we examine the characteristics and determinants of changes in the cover prices of The Economist magazine in a sample of twelve countries over the floating rate period. We find that, while the law of one price fails, there is no evidence of systematic attempts to offset nominal exchange rate movements. Instead, the findings are consistent with menu cost driven pricing behavior.

Suggested Citation

  • Atish R. Ghosh & Holger C. Wolf, 1994. "Pricing in International Markets: Lessons From The Economist," NBER Working Papers 4806, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:4806
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    References listed on IDEAS

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    1. Delgado, Francisco A., 1991. "Hysteresis, menu costs, and pricing with random exchange rates," Journal of Monetary Economics, Elsevier, vol. 28(3), pages 461-484, December.
    2. Baldwin, Richard, 1988. "Hyteresis in Import Prices: The Beachhead Effect," American Economic Review, American Economic Association, vol. 78(4), pages 773-785, September.
    3. Cecchetti, Stephen G., 1986. "The frequency of price adjustment : A study of the newsstand prices of magazines," Journal of Econometrics, Elsevier, vol. 31(3), pages 255-274, April.
    4. Roland Benabou, 1988. "Search, Price Setting and Inflation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 55(3), pages 353-376.
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    More about this item

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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