Exchange rate pass-through in two-period duopoly

Tivig, Thusnelda

doi:10.1016/0167-7187(95)00511-0

Cited by 23 publications

(15 citation statements)

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“…63 For other applications of switching-costs theory to international trade, see Tivig (1996) who develops \J-curves" (since sales quantities respond only slowly to price changes if there are switching costs), Gottfries (2002), , and Hartigan (1995).…”

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Coordination and Lock-In: Competition with Switching Costs and Network Effects

2006

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PRELIMINARY DRAFT: PLEASE SEND COMMENTSKEYWORDS: switching costs, network e ects, lock-in, network externalities, co-ordination, indirect network e ects JEL CLASSIFICATIONS: L130 market structure, rm strategy and market performance: oligopoly and other imperfect markets; monopolistic competition; contestable markets L150 information and product quality; standardization and compatibility L120 market structure, rm strategy and market performance: monopoly L140 transactional relationships: contracts and reputation: networks D430 market structure and pricing: oligopoly and other forms of market imperfection D420 market structure and pricing: monopoly. ACKNOWLEDGMENTS: We're grateful to many friends and colleagues for numerous helpful suggestions and comments over several substantial rewrites of this paper since our rst 1997 draft. Special thanks are due to Alan Beggs, Simon AbstractSwitching costs and network e ects bind customers to vendors if products are incompatible, locking customers or even markets in to early choices. Lock-in hinders customers from changing suppliers in response to (predictable or unpredictable) changes in e ciency, and gives vendors lucrative ex post market power|over the same buyer in the case of switching costs (or brand loyalty), or over others with network e ects.Firms compete ex ante for this ex post power, using penetration pricing, introductory o ers, and price wars. Such \competition for the market" or \life-cycle competition" can adequately replace ordinary compatible competition, and can even be ercer than compatible competition by weakening di erentiation. More often, however, incompatible competition not only involves direct e ciency losses but also softens competition and magni es incumbency advantages. With network e ects, established rms have little incentive to o er better deals when buyers' and complementors' expectations hinge on non-e ciency factors (especially history such as past market shares), and although competition between incompatible networks is initially unstable and sensitive to competitive o ers and random events, it later \tips" to monopoly, after which entry is hard, often even too hard given incompatibility. And while switching costs can encourage small-scale entry, they discourage sellers from raiding one another's existing customers, and so also discourage more aggressive entry.Because of these competitive e ects, even ine cient incompatible competition is often more pro table than compatible competition, especially for dominant rms with installed-base or expectational advantages. Thus rms probably seek incompatibility too often. We therefore favor thoughtfully pro-compatibility public policy.

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confidence: 99%

Coordination and Lock-In: Competition with Switching Costs and Network Effects

2006

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“…ERPT is said to be incomplete if the import (export) prices change by less than one. Whether ERPT is incomplete or pervasive, it is expected that an appreciation of currency reduces import prices and the reverse ensues in case of depreciation (Tivig, 1996;Gagonon and Knetter, 1995;Varangis and Duncun, 1993;Krugman, 1987). Changes in import prices then in turn influence domestic prices of commodities.…”

Section: Introductionmentioning

confidence: 99%

Modelling Exchange Rate Pass-through in Australia, China and India

Saha

Zhang²

2011

Chan, F., Marinova, D. And Anderssen, R.S. (Eds) MODSIM2011, 19th International Congress on Modelling and Simulation.

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Exchange rate pass-through (ERPT) has attracted attention of many researchers in the last three decades due to the adoption of flexible exchange rate system by many countries. The objectives of this study are to make a comparative study by exploring the literature relating pass-through for import prices and domestic prices in Australia, China and India. In particular, we test whether the exchange rate pass-through to import prices is complete, estimate the pass-through to CPI to investigate whether there is any association between the pass-through and the average inflation rate across these countries. Using a structural VAR model we test the exchange rate pass-through over the period 1990-2011. The impulse responses indicate that exchange rates have less effect in the rising domestic prices in China and India. This will have important policy implication for the monetary authorities.

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“…They showed that while foreign firms may either raise or lower their dollar export prices when the dollar appreciates temporarily (i.e., the pass-through may be perverse), an appreciation viewed as permanent leads to foreign firms pricing very aggressively to gain an increase in market share. Tivig (1996) extended Froot and Klemperer (1989) by deriving a sufficient condition for perverse pass-through and a necessary condition for normal pass-through. These conditions become necessary and sufficient under the (possibly more realistic) assumption of imperfect capital mobility and they are robust to changes in the game structure (e.g., they do not hinge on the assumption of open-or closed-loop pricing).…”

Section: Theoretical Studies On Exchange Rate Pass-throughmentioning

confidence: 99%

“…These brand loyalties give firms a degree of market power over their repeat-purchasers, and mean that firms' current market shares are important determinants of their ftiture profits. This model is a variant of Froot and Kiemperer (1989) and Tivig (1996). However, in my model, two different bilateral exchange rates are involved because each firm is based in a different foreign country.…”

Section: In3 Perfect Foresight and Exchange Rate Pass-throughmentioning

confidence: 99%

“…If the change of rival's exchange rate is in the opposite direction to the change of the firm's exchange rate and relatively large enough, the exchange rate pass-through is perverse even with elastic demand. In Froot and Klemperer (1989); Tivig (1996); and section 2 of this chapter, an unrealistic assumption, perfect foresight, is made. However, in section 4,1 drop this assumption and instead assume that the firm's pricing decision must be made before future exchange rates (but after current exchange rates) are known.…”

Section: Nil Introductionmentioning

confidence: 99%

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Three essays on imperfect competition and exchange rate pass-through in the presence of multiple exchange rates

Chang

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Theoretical studies on exchange rate pass-through 9 1.3.3 Empirical studies on exchange rate pass-through 13 n. PRICE LEADERSHIP AND EXCHANGE RATE UNCERTAINTY: 19 THE IMPLICATIONS FOR EXCHANGE RATE PASS-THROUGH n.l Introduction 19 11.2 The model 21 11.3 Nash-equilibrium and price leadership 26 11.4 Simulation and sensitivity 11.5 Implications to short-run exchange rate pass-through 11.6 Conclusion in. EXCHANGE RATE PASS-THROUGH IN AN INTERNATIONAL DUOPOLY MODEL WITH BRAND LOYALTY: THE EFFECT OF RIVAL EXCHANGE RATE in. 1 Introduction in.2 Exchange rate pass-through and the analytical definition 49 iv in.3 Perfect foresight and exchange rate pass-through 54 in.4 Imperfect foresight and exchange rate pass-through 63 in.4.I Perfect capital mobility 68 in.4.2 Imperfect capital mobility 70 in.5 Conclusion 79 IV. EMPRICAL STUDY OF EXCHANGE RATE PASS-THROUGH: THE EFFECT OF RIVAL EXCHANGE RATES IV. 1 Introduction IV.2 The imperfect competition model IV.3 The econometric model IV.4 Data description IV.5 Estimation results and discussion 93 rv.6 Conclusion 100 V. GENERAL CONCLUSION 102

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Exchange rate pass-through in two-period duopoly

Cited by 23 publications

References 4 publications

Coordination and Lock-In: Competition with Switching Costs and Network Effects

Coordination and Lock-In: Competition with Switching Costs and Network Effects

Modelling Exchange Rate Pass-through in Australia, China and India

Three essays on imperfect competition and exchange rate pass-through in the presence of multiple exchange rates

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