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Contribution Details
| Type | Journal Article |
| Scope | Discipline-based scholarship |
| Title | Exchange rates and Bertrand oligopoly |
| Organization Unit | |
| Authors |
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| Item Subtype | Original Work |
| Refereed | Yes |
| Status | Published in final form |
| Language |
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| Journal Title | Journal of Economics |
| Publisher | Springer-Verlag |
| Geographical Reach | international |
| ISSN | 0931-8658 |
| Volume | 70 |
| Number | 3 |
| Page Range | 281 - 307 |
| Date | 1999 |
| Abstract Text | The impact of exchange-rate changes on industrial prices seems ambiguous. Incomplete and even "perverse" pass-through has been observed: the import prices in the depreciating country decrease while those in the appreciating country increase. To explain these "counterintuitive" price reactions we consider a situation of international Bertrand competition: two firms, based in different countries, are selling in both countries simultaneously. The profit-maximizing duopolists set the prices for their products in each of the two markets which are segmented on the demand side. We then study the qualitative effect of an exogenous exchange-rate change on the Bertrand-Nash equilibrium. Under the strong assumption of linear demand and cost functions we have "normal" exchange-rate pass-through. However, allowing for more general cost structures in this simple static model enables us to show that the import prices in both countries might move in counterintuitive directions. |
| Related URLs | |
| Digital Object Identifier | 10.1007/BF01224740 |
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