Duopolists’ Retail Pricing Behavior in Multiple Markets

Mark Witte and Rachel Williams

Journal of Industry, Competition and Trade, 2014, vol. 14, issue 1, 67-81

Abstract: The law of one price asserts that, with costless trade, prices for identical goods in different countries should be equal after accounting for the exchange rate. The empirical literature suggests that exchange rate pass-through to prices is low and that the law of one price fails; instead, firms are more likely to price to market. This study adds to the literature by examining the pricing strategy of comic book firms within the context of the competition’s pricing behavior in a duopoly industry. Comic books, uniquely, display their retail prices in multiple countries on their cover giving us detailed information about the pricing behavior of each individual firm and their competition which allows us to test a pricing-to-market model. We find that an empirical model of an imperfectly applied law of one price outperforms a simple competitive, pricing-to-market model of pricing. Retail exchange rate pass-through rates between Canada and the United States average 76.8 %. This high exchange rate pass-through rate for comic books exists despite the existence of sticky prices and convenience pricing. Copyright Springer Science+Business Media New York 2014

Keywords: Law of one price; Exchange rate; Pass-through; Duopoly; Pricing-to-market; D43; L13; F15 (search for similar items in EconPapers)
Date: 2014
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DOI: 10.1007/s10842-013-0162-0

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