Gervais, Jean-Philippe and Larue, Bruno (2006): A Joint Test of Price Discrimination, Menu Cost and Currency Invoicing.
Download (220kB) | Preview
This paper investigates price discriminating behaviour and currency invoicing decisions of Canadian pork exporters in the presence of menu costs. It is shown that when export prices are negotiated in the exporter’s currency, menu costs cause threshold effects in the sense that there are bounds within (outside of) which price adjustments are not (are) observed. Conversely, the pass-through is not interrupted by menu costs when export prices are denominated in the importer’s currency. The empirical model focuses on pork meat exports from two Canadian provinces to the U.S. and Japan. Hansen’s (2000) threshold estimation procedure is used to jointly test for currency invoicing and incomplete pass-through in the presence of menu costs. Inference is conducted using the bootstrap with pre-pivoting methods to deal with nuisance parameters. The existence of menu cost is supported by the data in three of the four cases. It also appears that Quebec pork exporters price discriminate and invoice in Japanese yen their exports to Japan. Manitoba exporters also seem to follow the same invoicing strategy, but their ability to increase their profit margin in response to large enough own-currency devaluations is questionable. Our currency invoicing results for sales to the U.S. are consistent with subsets of Canadian firms using either the Canadian or U.S. currency.
|Item Type:||MPRA Paper|
|Original Title:||A Joint Test of Price Discrimination, Menu Cost and Currency Invoicing|
|Subjects:||F - International Economics > F1 - Trade > F14 - Empirical Studies of Trade
Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics > Q1 - Agriculture > Q17 - Agriculture in International Trade
C - Mathematical and Quantitative Methods > C2 - Single Equation Models; Single Variables > C22 - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
|Depositing User:||Jean-Philippe Gervais|
|Date Deposited:||25. Oct 2006|
|Last Modified:||13. Feb 2013 02:15|
Akelof, G. and J. Yelen, “A Near-Rational Model of the Business Cycle, with Wage and Price Inertia”, Quarterly Journal of Economics, 100 (1985): 823-838.
Beran, R., “Prepivoting Test Statistics: A Bootstrap View of Asymptotic Refinements”, Journal of the American Statistical Association 83(1988): 687-697.
Bergin, P.R. and R.C. Feenstra, “Pricing-to-Market, Staggered Contracts and Real Exchange Rate Persistence”, Journal of International Economics 54(2001): 333-359.
Booth, J.G. and P. Hall, “Monte Carlo Approximation and the Iterated Bootstrap”, Biometrika 81(1994): 331–340.
Bowen, H., A. Hollander and J-M. Viaene, Applied International Trade Analysis, The University of Michigan Press, 1998.
Brown, J., “Price Discrimination and Pricing to Market Behaviour of Canadian Canola Exporters”, American Journal of Agricultural Economics 83(2001): 1343-49.
Carew, R., and W. J. Florkowski, “Pricing to Market Behaviour by Canadian and U.S. Agri-food Exporters: Evidence from Wheat, Pulse and Apples”, Canadian Journal of Agricultural Economics 51(2003): 139-59.
Davidson, R., and J. G. McKinnon, Estimation and Inference in Econometrics, Oxford University Press, Oxford, 1993.
Donnenfeld, S., and A. Haug, “Currency Invoicing in International Trade: An Empirical Investigation”, Review of International Economics 11(2003): 332-345.
Gil-Pareja, S., “Export Price Discrimination in Europe and Exchange Rates”, Review of International Economics 10(2002): 299-312.
Griffith, G. and J. Mullen, “Pricing-to-Market in NSW Rice Export Markets”, Australian Journal of Agricultural Economics 45(2001): 323-334.
Hamilton, J. D., Time Series Analysis, Princeton University Press, 1994.
Hansen, B., “Sample Splitting and Threshold Estimation”, Econometrica, 68(2000): 575-603.
Johnson, M., and D. Pick, “Currency Quandary: The Choice of Invoicing Currency under Exchange-Rate Uncertainty”, Review of International Economics 5(1997): 118-28.
Klemperer, P., “The Competitiveness of Markets with Switching Costs, Rand Journal of Economics 18(1987): 137-150.
Knetter, M. M., “Price Discrimination by U.S. and German Exporters”, American Economic Review 79(1989): 198-210.
Knetter, M., “Is Export Price Adjustment Asymmetric? Evaluating the Market Share and Marketing Bottlenecks Hypotheses”, Journal of International Money and Finance, 13(1994): 55-70.
Krugman, P., Pricing to Market When the Exchange Rate Changes, National Bureau of Economic Research, Working Paper 1926, 1986.
Larue, B., R. Romain, J-P. Gervais and S. Ben Salha, “The Collusion Deterring Effect of Pre-Attributed Supplies and the Hog Auction in Quebec”, Canadian Journal of Agricultural Economics 48(2000): 607-622.
Marston, R., “Price Behaviour in Japanese and U.S. Manufacturing” in Krugman, P.R. (Ed.) Trade with Japan, University of Chicago Press, Chicago (1991).
McCullough, B. D., and H. D. Vinod, “Implementing the Double Bootstrap”, Computational Economics 12(1998): 79-95.
Pick, D. H., and C. A. Carter, “Pricing to Market with Transactions Denominated in a Common Currency”, American Journal of Agricultural Economics 76(1994): 55-60.
Sasaki, Y. N., “Pricing-to-Market Behaviour: Japanese Exports to the US, Asia, and the EU”, Review of International Economics 10(2002): 140-150.
Sato, K., “Currency Invoicing in Japanese Exports to East Asia: Implications for Yen Internationalization”, Asian Economic Journal 17(2003): 129-54.
Uctum, M., “Pricing-to-Market: The Japanese Experience with a Falling Yen and the Asian Crisis”, Review of International Economics 11(2003): 360-78.
Wohlgenant, M. K., “Marketing Margins: Empirical Analysis”, in Gardner, B. and Rausser G. (Eds.) Handbook of Agricultural Economics Vol. 1, Elsevier Science, Amsterdam (2001).