Exchange rates and market power: evidence from the petrochemical industry

Exchange rates and import prices in Switzerland

“…Following Bernhofen and Xu (2000), it is assumed that importers anticipate the reaction of local producers when changing import prices, as reflected by the conjectural elasticity…”

“…A common topic of this literature is that imperfect competition -or in other words the extent of market power within an industry -lowers the pass-through effect by allowing importing firms to act, to a certain degree, independently from local competition permitting them to keep import prices stable even when production costs change due to fluctuating currencies (see e.g. Bernhofen and Xu, 2000). To reflect the role of competitive conduct, arguably, a disaggregated approach is warranted.…”

“…To reflect the role of competitive conduct, arguably, a disaggregated approach is warranted. Bernhofen and Xu (2000) focus e.g. on petrochemicals whilst Feenstra (1989) contemplates the effect of exchange rates upon prices in the automotive industry.…”

“…Section 2 develops the theoretical background connecting the role of imperfect competition with the exchange rate passthrough. Owing to the modeling of preferences with the transcendental logarithmic expenditure function of Feenstra (2003) and the usage of conjectural elasticities as in Bernhofen and Xu (2000), the proposed theoretical framework is compatible with a broad range of market conduct and provides the basis to compare the degree of competition between importers and local producers across different industries. Section 3 discusses the data and econometric strategy.…”

An Analysis of Import Substitution in Russia After the Crisis of 1998

“…The first type of analysis studies the exchange rate pass-through into the prices of individual imported goods or of the imported output of individual sectors (see Bernhofen and Xu, 2000;Goldberg and Knetter, 1996;and others) or into aggregate (averaged) prices of imports (see, e.g., Campa and Goldberg, 2002;Hooper and Mann, 1989). The second type of analysis studies the exchange rate pass-through into general indexes of consumer prices and of producers' prices (see, e.g., McCarthy, 1999) and incorporates analysis of the response of average prices in the economy to changes in the exchange rate.…”