NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Pricing in International Markets: Lessons From The Economist

Atish R. Ghosh, Holger C. Wolf

NBER Working Paper No. 4806
Issued in July 1994
NBER Program(s):   ITI   IFM

Export firms are often assumed to stabilize destination market prices in the face of nominal exchange rate changes in order to protect market share. We show that standard tests of such pricing to market fail to discriminate against the alternative hypothesis of menu costs. As a case study, we examine the characteristics and determinants of changes in the cover prices of The Economist magazine in a sample of twelve countries over the floating rate period. We find that, while the law of one price fails, there is no evidence of systematic attempts to offset nominal exchange rate movements. Instead, the findings are consistent with menu cost driven pricing behavior.

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Document Object Identifier (DOI): 10.3386/w4806

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