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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- 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.
- 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.
- 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.
- 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).
- Richard Baldwin & Paul Krugman, 1989. "Persistent Trade Effects of Large Exchange Rate Shocks," The Quarterly Journal of Economics, Oxford University Press, vol. 104(4), pages 635-654.
- Richard Baldwin & Paul R. Krugman, 1986. "Persistent Trade Effects of Large Exchage Rate Shocks," NBER Working Papers 2017, National Bureau of Economic Research, Inc.
- Dornbusch, Rudiger, 1987. "Exchange Rates and Prices," American Economic Review, American Economic Association, vol. 77(1), pages 93-106, March.
- Gabszewicz, Jean Jaskold, 1983. "Blue and Red Cars, or Blue Cars Only? A Note on Product Variety," Economica, London School of Economics and Political Science, vol. 50(198), pages 203-206, May.
- GABSZEWICZ, Jean J., "undated". "Blue and red cars, or blue cars only? A note on product variety," CORE Discussion Papers RP 524, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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