Exchange-Rate Pass-Through and Market Structure
Journal of Economics-Zeitschrift Fur Nationalokonomie, 1996, 64, 2, 129-154
KIRMAN, Alan, PHLIPS, Louis, Exchange-Rate Pass-Through and Market Structure, Journal of Economics-Zeitschrift Fur Nationalokonomie, 1996, 64, 2, 129-154 - http://hdl.handle.net/1814/16774
Retrieved from Cadmus, EUI Research Repository
We consider a situation in which n firms located in market l and m firms located in market 2 each sell a commodity which is homogeneous within each market but may differ between markets. All firms sell on both markets. Each market has its own currency. The market demand functions differ. We give some basic results on the effects of exchange-rate changes and then show the following. When these markets are independent on the cost side (constant marginal costs) and demands are linear, a reduction in the number of firms (which might result from a merger) in market 1 increases the pass-through (of an appreciation of currency 2) in market 1 and decreases the pass-through in market 2. A similar occurrence in market 2 has the opposite effect. We give conditions under which, with identical economies of scope linking the markets, the sign of the price changes will be reversed when the number of foreign firms is small enough compared to the number of local firms. However, such sign reversals cannot occur in the two markets simultaneously.
Cadmus permanent link: http://hdl.handle.net/1814/16774
Full-text via DOI: 10.1007/BF01250111
Earlier different version: http://hdl.handle.net/1814/434
Version: The article is a published version of EUI ECO WP; 1992/83
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