Market Structure and Exchange Rate Exposure: The Case of Consumable Goods

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Andrikopoulos, A. ; Dassiou, X. (2016)
  • Publisher: Department of Economics, City, University of London
  • Subject: HD | HG
    mesheuropmc: health care economics and organizations

We examine the impact of exchange rates on profits and prices in differentiated consumable goods markets. We model the exchange rate exposure of exporting firms operating within a Bertrand or a Cournot setting where between and within competition co-exist. We show that market structure and these two forces determine pass through and exposure. Empirical tests of real and bilateral exchange rate exposure using stock price and profit data confirm a link between the ability of a firm to pass on the exchange rate changes to its customers and the magnitude of the exposure on their rivals.
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