PRICING-TO-MARKET: EXPLORING NEW EXPORT PRICE EQUATIONS FOR THE LINK MODEL

Byron Gangnes (), Hung-Yi Li and Peter Pauly
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Hung-Yi Li: Project LINK Research Centre, Institute for Policy Analysis, 140 St. George Street, Toronto, Ontario, M5S 3G6, CANADA
Peter Pauly: Project LINK Research Centre, Institute for Policy Analysis, 140 St. George Street, Toronto, Ontario, M5S 3G6, CANADA

Chapter 17 in Link Proceedings 1991, 1992:Selected Papers from Meetings in Moscow, 1991, and Ankara, 1992, 1998, pp 331-351 from World Scientific Publishing Co. Pte. Ltd.

Abstract: AbstractThis paper describes preliminary work on respecification of the trade price linkages used in the global system of Project LINK. The basic feature of the approach is the focus on deviations from the competitive market paradigm: Exporting firms have market power and establish prices abroad depending on conditions in foreign markets, including perceived demand for their product, the extent and nature of competition, and perhaps strategic considerations affecting future market share. Such “pricing to market” results in incomplete pass-through of exchange rate and other cost changes. After briefly reviewing the issues, we present some exploratory empirical evidence on pricing behavior among LINK countries. While the first results are encouraging, it remains to be seen whether a similar approach can be implemented successfully using the more disaggregated trade data set soon to be incorporated into the LINK model.

Date: 1998
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