NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Market Share and Exchange Rate Pass-Through in World Automobile Trade

Robert C. Feenstra, Joseph E. Gagnon, Michael M. Knetter

NBER Working Paper No. 4399
Issued in July 1993
NBER Program(s):   ITI

This paper explores the relationship between exchange rate pass-through and market share for monopolistically competitive exporters. Under fairly general assumptions we show that pass-through should be high for exporters based in a country with a very large share of total destination market sales. For source countries with small and intermediate market shares, the theoretical relationship is potentially nonlinear and sensitive to assumptions about the nature of consumer demand and firm interactions. The model is estimated using a panel data set of automobile exports from France, Germany, Sweden, and the United States to a variety of destinations over the period 1970-1988. The empirical relationship between pass-through and market share is significantly non-linear: pass-through is the lowest when the source country's market share is around 45 percent and it is highest when the source country's share approaches 100 percent.

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Published: Journal of International Economics, vol. 40, no. 1-2, Feb. 1996, pp. 187-207

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