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Is “Three” a lucky number? Exchange-rate exposure in a “Rule of Three” model

Andrikopoulos, Athanasios; Dassiou, Xeni

Authors

Xeni Dassiou



Abstract

We examine exchange-rate exposure in an international model of differentiated goods using the frequently encountered in international markets “Rule of Three” (RoT) market structure that allows both within and between countries competition. In a static setting the addition of a domestic competitor increases the exposure of both internationally competing firms relative to duopoly unless the exchange-rate pass-through of one of its rivals is elastic. Using a dynamic model, we study the intertemporal effects on the firms’ long-run exposure. The exposure gap between the RoT market and the international duopoly increases in the long run for the firm facing domestic competition. The long-run exposure of that firm can be higher or lower than its short-run exposure, while the foreign monopolist has a smaller long-run exposure.

Citation

Andrikopoulos, A., & Dassiou, X. (2020). Is “Three” a lucky number? Exchange-rate exposure in a “Rule of Three” model. Journal of business research, 121, 85-92. https://doi.org/10.1016/j.jbusres.2020.08.008

Journal Article Type Article
Acceptance Date Aug 4, 2020
Online Publication Date Aug 21, 2020
Publication Date 2020-12
Deposit Date Sep 13, 2020
Publicly Available Date Oct 27, 2022
Journal Journal of Business Research
Print ISSN 0148-2963
Publisher Elsevier
Peer Reviewed Peer Reviewed
Volume 121
Pages 85-92
DOI https://doi.org/10.1016/j.jbusres.2020.08.008
Keywords Rule of three market; Exchange-rate exposure; Switching costs; Short run; Long run
Public URL https://hull-repository.worktribe.com/output/3566429
Publisher URL https://www.sciencedirect.com/science/article/abs/pii/S0148296320305075?via%3Dihub

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