✦ LIBER ✦

Exchange rates and product variety

✍ Scribed by Witness Simbanegavi

Publisher: John Wiley and Sons
Year: 2009
Tongue: English
Weight: 154 KB
Volume: 14
Category: Article
ISSN: 1076-9307
DOI: 10.1002/ijfe.362

No coin nor oath required. For personal study only.

✦ Synopsis

Abstract

We study the role of exchange rate variability in the firm's choice of whether to offer one or two varieties. We show that variability induces the firm to vertically segment markets (offer two varieties). This happens because variability in the exchange rate affects income dispersion and hence the firm's incentives to extract consumer surplus. To better extract surplus, the firm offers two price‐quality menus, a high‐quality variant geared for top‐end surplus extraction and a low‐quality variant to address market coverage concerns. Copyright © 2007 John Wiley & Sons, Ltd.

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