Mark-up Pricing Model Research Articles

The role of inflation regime in the exchange rate pass-through to import prices

We examine exchange rate pass-through (ERPT) into aggregate import prices for nine OECD countries in view of Taylor's [Taylor, J., (2000). Low Inflation, Pass-through, and the Pricing Power of Firms, European Economic Review 44 (7), 1389–1408] suggestion that the degree of pass-through is dependent on the importing country inflation regime. Extending the standard mark-up pricing model under monopolistic competition to a setting where the pricing decision is dependent on the importing country inflation experience, we present strong empirical evidence for the inflation regime dependence of pass-through elasticities for the analyzed countries based on nonlinear estimation methodology. Our main result is that the pass-through is highly incomplete and positively correlated with the importing country inflation environment, when the empirical analysis is conducted using nonlinear threshold or smooth transition estimation techniques.

Farm-retail price transmission in Malaysian pork sector

This study intends to determine the farm-retail price transmission behaviors of pork in Malaysia to serve as a good implication for pork pricing system in Malaysia. Using monthly data from January 1997 to December 2008, markup pricing model, Houck, and ECM approaches were estimated. While many previous studies found that farm-retail price transmission is asymmetric, this study encountered different result where the findings in both the Houck and ECM approaches suggested that the Malaysian pork farm-retail price transmission is symmetric. A change in farm price of pork is likely to have similar direction in change of retail price of pork in Malaysia. The pricing system of pork can therefore be further described by the estimated price transmission elasticities (that derived from the symmetric mark-up pricing model) where retail price is very sensitive to the changes in farm price. A change in farm price is expected to result in a bigger change in retail price of pork while other things remain unchanged.

Empirical Evidence on the Role of Inflation Regime in the Exchange Rate Pass-Through to Import Prices

We examine exchange rate pass-through into aggregate import prices for several industrialized countries in view of Taylor’s (2000) suggestion that the degree of pass-through is dependent on importing country inflation. Extending the standard mark-up pricing model under monopolistic competition towards a setting where the pricing decision is dependent on the importing country inflation rate regime, and using nonlinear smooth transition estimation methodology we present empirical evidence for the inflation regime dependence of pass-through elasticities for several OECD countries. The pass-through seems to be incomplete and positively correlated with the importing country inflation rate.

Cross‐country Relative Price Volatility: Effects of Market Structure*

AbstractUsing annual data on nine manufacturing sectors of 18 OECD countries, the article studies the implications of market structure for cross‐country relative price variability. It is found that, in accordance with predictions from a standard markup pricing model, reductions in market competition, along with increased nominal exchange rate volatility, are associated with greater variability of cross‐country relative prices. The market structure also has similar effects on components of cross‐country relative price variability. The empirical findings are robust to the inclusion of various control variables and alternative sample specifications.

Cross-Country Relative Price Volatility: Effects of Market Structure

Using annual data on nine manufacturing sectors of eighteen OECD countries, the article studies the implications of market structure for cross-country relative price variability. It is found that, in accordance with predictions from a standard markup pricing model, reductions in market competition, along with increased nominal exchange rate volatility, are associated with greater variability of cross-country relative prices. The market structure also has similar effects on components of cross-country relative price variability. The empirical findings are robust to the inclusion of various control variables and alternative sample specifications.

Long-run price effects of exchange rate changes in Finnish pulp and paper exports

This paper presents long-run exchange rate elasticities of Finnish newsprint and pulp export prices in the United Kingdom (UK) and Germany over the period 1980–94. The elasticities were estimated for a markup pricing model using Johansen's cointegration method. The magnitudes of the elasticity estimates obtained by imposing price homogeneity indicate that pass-through of exchange rate changes to export prices has been incomplete in both markets. For newsprint, the pass-through elasticity was 0.60 in the UK and 0.46 in Germany, which means that about one half of the changes in the exchange rates is reflected in prices as expressed in the destination countries' currencies and about a half in prices measured in Finnish markka. Instead, in pulp exports the pass-through elasticities differed from each other between the two destination countries more clearly than in newsprint exports, indicating a different pricing behaviour of Finnish pulp exporters in the UK and Germany when exchange rate changes. Pass-through was small in the UK pulp market (0.07) as compared to Germany (0.68).

A SIMPLE IMPERFECTLY COMPETITIVE MODEL OF THE DISTRIBUTION OF INCOME

A simple imperfectly competitive model of income distribution is developed in which sellers have market power in both product and labor markets. Market power in product markets is the dominant factor affecting relative shares. A mark-up pricing model is put forward in which firms base price on an incorrect mark-up over average variable costs. Simulations suggest that actual mark-ups are likely to be quite close to profit-maximizing levels. However, small deviations from correct levels that imply small individual losses can have quite large macro effects on output, employment, and relative shares. Copyright 1992 by Scottish Economic Society.

A mark-up pricing model for price simulations

This paper develops an input/output model of pricing using a mark-up pricing formula. The connection between mark-up pricing and competitive pricing is analyzed through the determination of sectoral equilibrium profit mark-up rates as a function of the profit rate and the capital intensity of each sector. The model is used to analyze the effects on relative prices and the aggregate price level of exogenous changes in the nominal wage rate, tax rates, the exchange rate and world prices. Exogenous changes in the prices of domestically produced commodities are modelled via the imposition of ad valorem tax rates, which yield a measure of the net effect of the exogenous changes. Simulations are carried out under passive price adjustment as well as adjustment with price ceilings. In this last instance the model calculates the endogenously determined reduction in profit mark-ups. Lastly, empirical results of various simulations are presented using data from the Mexican economy.