Pricing in International Markets: Lessons From The Economist
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.
|Date of creation:||Jul 1994|
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- 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.
- 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.
- Baldwin, Richard, 1988.
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American Economic Review,
American Economic Association, vol. 78(4), pages 773-785, September.
- Richard Baldwin, 1988. "Hysteresis In Import Prices: The Beachhead Effect," NBER Working Papers 2545, National Bureau of Economic Research, Inc.
- Roland Benabou, 1988. "Search, Price Setting and Inflation," Review of Economic Studies, Oxford University Press, vol. 55(3), pages 353-376. Full references (including those not matched with items on IDEAS)
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