View metadata
| dc.title | Buyer Market Power and Exchange Rate Pass-through. Discussion Paper |
| dc.contributor.author | Juarez, Leticia |
| dc.contributor.orgunit | Department of Research and Chief Economist |
| dc.coverage | Colombia |
| dc.date.available | 2023-08-21T00:08:00 |
| dc.date.issue | 2023-08-21T00:08:00 |
| dc.description.abstract | This paper studies the role of buyer market power in determining the response of international prices to exchange rate changes (i.e., exchange rate pass-through). Using a novel dataset of the universe of Colombian export transactions that links Colombian exporters (sellers) to their foreign importers (buyers), I document three facts: i) most Colombian exports are concentrated in a few foreign buyers in each market, ii) the same seller charges different prices to different buyers in the same product and destination, and iii) markets with a higher concentration of sales among buyers display lower exchange rate pass-through. Motivated by these stylized facts, I propose an open economy model of oligopsony, a market with large number of sellers and a few buyers, that accounts for buyer market power in international markets and its consequences for price determination in international transactions. The model shows that larger foreign buyers pay a marked-down price, i.e., a price below the marginal product value for the buyer. Most importantly, these markdowns are flexible and play a role when adjusting prices to exchange rate shocks. I derive a model-based equation relating pass-through to buyer size and estimate it on the micro transaction level data for Colombia. I find that after an exchange rate shock, sellers connected to larger buyers face more moderate changes in their prices in the seller currency (i.e., lower exchange rate pass-through) than those connected to small buyers. Pass-through ranges from 1% for firms connected with the largest buyers to 17% for firms connected with the smallest buyers. I use the estimates from the empirical analysis to calibrate the model and propose a counterfactual where buyer market power is eliminated. Under this scenario, sellers' revenues increase; however, the price in seller currency is more responsive to exchange rate shocks. |
| dc.format.extent | 56 |
| dc.identifier.doi | http://dx.doi.org/10.18235/0005083 |
| dc.identifier.url | https://publications.iadb.org/publications/english/document/Buyer-Market-Power-and-Exchange-Rate-Pass-through.pdf |
| dc.language.iso | en |
| dc.publisher | Inter-American Development Bank |
| dc.subject | Export Market |
| dc.subject | Small Business |
| dc.subject | Export |
| dc.subject | Exchange Rate |
| dc.subject | Competitiveness |
| dc.subject | Forest Resource |
| dc.subject | Export Activity |
| dc.subject | Economy |
| dc.subject.jelcode | D43 - Oligopoly and Other Forms of Market Imperfection |
| dc.subject.jelcode | E31 - Price Level • Inflation • Deflation |
| dc.subject.jelcode | F31 - Foreign Exchange |
| dc.subject.jelcode | F41 - Open Economy Macroeconomics |
| dc.subject.jelcode | F42 - International Policy Coordination and Transmission |
| dc.subject.keywords | Market power;Oligopsony;market structure;Markdown;Exchange-rate pass-through |
| dc.type | Discussion Papers |
| idb.identifier.pubnumber | IDB-DP-01026 |
| idb.operation | RG-E1878 |