Market Shares, Financial Constraints, and Pricing Behavior in the Export Market

Abstract

A structural dynamic model of price and quantity adjustment is estimated on time-series data for exports and export prices. Two sources of dynamics are considered: customer markets and pre-set prices. As predicted by the customer market model, the market share adjusts slowly after a change in the relative price and financial conditions affect prices. Prices are found to be sticky in the sense that they do not reflect the most recent information about costs and exchange rates. A parsimonious structural model explains about 90 percent of the variation in market share and the relative price.

Keywords: customer market, switching cost, markup, sticky price, price adjustment

JEL Classification: D43, E31, F41