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dc.titleBuyer Market Power and Exchange Rate Pass-through
dc.contributor.authorJuarez, Leticia
dc.contributor.orgunitDepartment of Research and Chief Economist
dc.coverageColombia
dc.date.available2025-06-03T00:06:00
dc.date.issue2025-06-03T00:06:00
dc.description.abstractI 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 and up 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. I study the impact of buyer market power on international price responses to exchange rate changes. In markets with high buyer concentration, larger foreign buyers secure marked-down prices that adjust flexibly to exchange rate shocks. Using a novel dataset of Colombian export transactions, I estimate an open economy oligopsony model with endogenous markdowns, revealing that sellers connected to larger buyers experience milder price changes (1% impact) compared to those connected with smaller buyers (15% impact). These findings highlight a trade-off: while larger buyers reduce seller revenues, they also reduce sellers' exposure to exchange rate volatility, emphasizing the strategic importance of buyer relationships in international markets.
dc.format.extent81
dc.identifier.doihttp://dx.doi.org/10.18235/0013557
dc.identifier.urlhttps://publications.iadb.org/publications/english/document/Buyer-Market-Power-and-Exchange-Rate-Pass-through.pdf
dc.language.isoen
dc.publisherInter-American Development Bank
dc.subjectSmall Business
dc.subjectExport
dc.subjectExchange Rate
dc.subjectCompetitiveness
dc.subjectExport Activity
dc.subjectImport
dc.subjectExport Market
dc.subject.jelcodeD43 - Oligopoly and Other Forms of Market Imperfection
dc.subject.jelcodeE31 - Price Level • Inflation • Deflation
dc.subject.jelcodeF31 - Foreign Exchange
dc.subject.jelcodeF32 - Current Account Adjustment • Short-Term Capital Movements
dc.subject.keywordsMarket power;Oligopsony;market structure;Markdown;Exchange-rate pass-through
idb.identifier.pubnumberIDB-WP-01628
idb.operationRG-E1963
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