Prices, Profits and Exchange Rate Uncertainty: The Case of Bertrand Competition in Differentiated Goods

Working Paper Series in Economics and Finance No. 196

21 Pages Posted: 17 Jan 1998

See all articles by Richard Friberg

Richard Friberg

Stockholm School of Economics - Department of Economics

Date Written: October 2, 1997

Abstract

This paper studies a simple duopoly model of price competition under exchange rate uncertainty with pre-set prices and differentiated goods. Competitors come from different countries and compete in a foreign market. We study the effect of the price setting currency chosen on expected prices, profits and exchange rate exposure. For a wide range of parameter values price setting in the importer's currency is the dominant strategy. Implications of limited exchange rate pass-through for exchange rate exposure are discussed. The exchange rate pass-through elasticity is shown to be increasing in own-price effects. Parallels are drawn to the literature on strategic trade policy.

JEL Classification: F23

Suggested Citation

Friberg, Richard, Prices, Profits and Exchange Rate Uncertainty: The Case of Bertrand Competition in Differentiated Goods (October 2, 1997). Working Paper Series in Economics and Finance No. 196. Available at SSRN: https://ssrn.com/abstract=53904 or http://dx.doi.org/10.2139/ssrn.53904

Richard Friberg (Contact Author)

Stockholm School of Economics - Department of Economics ( email )

P.O. Box 6501
Sveavagen 65
S-113 83 Stockholm
Sweden
+46 8 736 9645 (Phone)
+46 8 720 7752 (Fax)

Register to save articles to
your library

Register

Paper statistics

Downloads
167
Abstract Views
950
rank
178,514
PlumX Metrics