Is Price Adjustment Asymmetric?: Evaluating the Market Share and Marketing Bottlenecks Hypothesis, Issue 4170
The theoretical literature on pricing-to-market has identified two possible reasons why the elasticity of prices to exchange rate changes may be asymmetric across appreciations and depreciations. If firms are attempting to increase market shares in foreign markets subject to the possibility of trade restrictions, then more pricing-to-market may occur during appreciations of the exporter's currency. If firms face capacity constraints in their distribution networks, then pricing-to-market may be exaggerated during periods of depreciation of the exporters currency. This paper uses panel data on German and Japanese 7-digit industry exports to compare these competing explanations for asymmetries in pricing-to-market behavior. While the data seldom reject the null hypothesis of a symmetric response of prices to exchange rates, some industries, notably automobiles, provide empirical support for the market share model. Only a pooled regression with Japanese data supports the marketing bottlenecks model.
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7-digit industry Aluminum Foil aluminum hydroxide Apiſ appreciations and depreciations B2 F-Stat msl Bl B2 F-Stat bottlenecks model Bureau of Economic capacity constraints coefficient currency prices destination market destination-specific changes Durbin-Watson Statistics Economic Research errors in parentheses evidence exchange rate changes export price adjustment exporter's currency F-statistic tests F-test Fan Belts favor the market German and Japanese German Exports Imitation Pearls Industry Bl B2 Japanese autos Japanese Exports Japanese industries Joseph E Kenneth Kenneth Rogoff Knetter marginal cost marginal significance level market share model markup adjustment Marston Michael National Bureau NBER null hypothesis Panel Data parentheses are robust Paul Krugman Portland Cement prices to exchange pricing to market pricing-to-market PTM during depreciations response of prices responses for appreciations Results of Equation Richard robust to heteroscedasticity Selenium Share and Marketing source countries Sparkling Wine Standard errors statistically significant symmetric response Synthetic Dyes Table titanium oxide Vitamin