Is Price Adjustment Asymmetric?: Evaluating the Market Share and Marketing Bottlenecks Hypothesis

28 Pages Posted: 26 May 2011

See all articles by Michael M. Knetter

Michael M. Knetter

University of Wisconsin - Madison - School of Business; National Bureau of Economic Research (NBER)

Date Written: September 1992

Abstract

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.

Suggested Citation

Knetter, Michael M., Is Price Adjustment Asymmetric?: Evaluating the Market Share and Marketing Bottlenecks Hypothesis (September 1992). NBER Working Paper No. w4170. Available at SSRN: https://ssrn.com/abstract=1853147

Michael M. Knetter (Contact Author)

University of Wisconsin - Madison - School of Business ( email )

975 University Avenue
Madison, WI 53706
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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