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Exchange Rate Pass-Through and the Role of Market Shares

Michael Malenbaum ()
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Michael Malenbaum: Iona College

Journal of Industry, Competition and Trade, 2018, vol. 18, issue 2, 151-185

Abstract: Abstract This paper examines the effects of changing market shares on exchange rate pass-through to US import prices. Based on a static model of imperfect competition, I predict that a country with a larger share of a host’s import market will have lower pass-through than its competitors. Using highly disaggregated data on US imports, I implement rolling regressions to calculate unique quarterly values of pass-through for specific goods from each exporting country. These values are compared across market shares, indicating a general trend of decreasing pass-through for larger shares. Most specifically, as predicted by the model, the country holding the largest share of the market has significantly lower pass-through than its competitors. The negative relationship between pass-through and market share holds across most categories of goods, most notably the larger categories of imports. Lastly, I show the market share effect is stronger following larger fluctuations in the exchange rate, particularly after large dollar appreciations.

Keywords: International trade; Competition; Market share; Exchange rates; Import prices (search for similar items in EconPapers)
JEL-codes: F14 F31 F41 (search for similar items in EconPapers)
Date: 2018
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