Exchange Rates and Product Variety
We study the role of exchange rate variability in the firm's choice of whether to oÂ¤er one or two varieties. We show that variability induces the firm to vertically segment markets (offer two varieties). This happens because variability in the exchange rate aÂ¤ects income dispersion and hence the firm's incentives to extract consumer surplus. To better extract surplus, the firm offers two price-quality menus, a high quality variant geared for top-end surplus extraction and a low quality variant to address market coverage concerns.
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- Gabszewicz, Jean Jaskold, 1983.
"Blue and Red Cars, or Blue Cars Only? A Note on Product Variety,"
London School of Economics and Political Science, vol. 50(198), pages 203-206, May.
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NBER Working Papers
2017, National Bureau of Economic Research, Inc.
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- GABSZEWICZ, Jean J. & SHAKED, Avner & SUTTON, John & THISSE, Jacques-François, "undated".
"Segmenting the market: the monopolist's optimal product mix,"
CORE Discussion Papers RP
707, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Jaskold Gabszewicz, Jean & Shaked, Avner & Sutton, John & Thisse, Jacques-Francois, 1986. "Segmenting the market: The monopolist's optimal product mix," Journal of Economic Theory, Elsevier, vol. 39(2), pages 273-289, August.
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"Exchange Rates and Prices,"
NBER Working Papers
1769, National Bureau of Economic Research, Inc.
- Friberg, Richard, 2000.
"Two monies, two markets? Variability and the option to segment,"
SSE/EFI Working Paper Series in Economics and Finance
349, Stockholm School of Economics.
- Friberg, Richard, 2001. "Two monies, two markets?: Variability and the option to segment," Journal of International Economics, Elsevier, vol. 55(2), pages 317-327, December.
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