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Industry Restructuring, Mark-ups, And Exchange Rate Pass-through

Author

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  • Danny Leung

    (Bank of Canada)

  • Beverly Lapham

Abstract

Consumer prices are not very responsive to movementsin nominal exchange rates and their response has fallenin Canada since the mid 1980s. This paper explores two of the most likely explanations for this decline in exchange rate pass-throughto consumer prices: (1)lower inflation and (2) restructuring in the retail sector. We believe that both explanations are important but our primary focus in this paper is on the second explanation. We discuss the restructuring that has occurred in Canadian retail and trends in mark-ups and concentration in that sector. We argue that to understand these trends, it is important to examine pass-through in industrialorganization models with strategic elements. Finally, we present a series of such models and evaluate the effects of various forms of restructuring on mark-ups, concentration, and exchange rate pass-through.

Suggested Citation

  • Danny Leung & Beverly Lapham, 2006. "Industry Restructuring, Mark-ups, And Exchange Rate Pass-through," Working Paper 1120, Economics Department, Queen's University.
    • Handle: RePEc:qed:wpaper:1120
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    More about this item

    Keywords

    Pass-Through; Restructuring; Strategic Pricing; Mark-ups; Exchange Rates; Imperfect Competition;
    All these keywords.

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • F15 - International Economics - - Trade - - - Economic Integration
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure

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