Pricing strategy, mark-up adjustment and foreign competition in the car industry

Abstract

This paper examines, empirically, the impact of exchange rate fluctuations and foreign competition on pricing strategy in the car industry. The study shows how the Swedish car export prices react to exchange rate changes and market conditions in the five major destination markets (France, Germany, Japan, the UK, and the USA). It has been demonstrated, through non-stationary panel analysis, that the Swedish export prices in the car industry change but not in proportion to exchange rate changes. The evidence reveals that price adjustments are associated with stabilisation of local currency prices. Our findings also show that the pricing behaviour of the Swedish car exporters varies across destination markets and such variations could be related to market-specific characteristics and market structure.