Matteo Bugamelli, Roberto Tedeschi

Exporters' Pricing Strategies: the Case of Italy

  • Abstract

Informations and abstract

Keywords: exchange rate pass-through, pricing-to-market, market structure.

Using Italian data over the period 1990-99, this paper estimates an export pricing equation along the lines traced in the Pricing-to-Market literature on exchange rate pass-through (ERPT). As compared to previous papers, we minimize aggregation and selection biases, by focusing on all destination markets (about 70) and all finely disaggregated products (700, according to the 4-digits of SITC). The results show a lot of heterogeneity. On average, ERPT is largely asymmetric: Italian exporters do not cut their profit margins and thus do not defend their market shares when the lira appreciates; they instead raise prices by about 30 per cent of the exchange variation after a lira depreciation. Distinguishing by markets and products, it emerges an incomplete ERPT in industrial markets and in the case of goods produced in "oligopolistic" industries (e.g., economies of scale, high-tech). The same occurs in those sectors where firms are on average larger and the evolution of productivity more favourable. In the traditional sectors (textile, clothing, shoes, etc.), and in the developing countries, where Italian presence is more fragmented, ERPT is almost complete and symmetric: this result may be due to entry-exit of small firms in those markets.

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