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

Andrikopoulos, Athanasios; Dassiou, Xeni


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Dr Thanos Andrikopoulos
Lecturer in Finance & Programme Director BSc Financial Management at University of Hull

Xeni Dassiou


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.

Journal Article Type Article
Publication Date 2020-12
Journal Journal of Business Research
Print ISSN 0148-2963
Publisher Elsevier
Peer Reviewed Peer Reviewed
Volume 121
Pages 85-92
APA6 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.
Keywords Rule of three market; Exchange-rate exposure; Switching costs; Short run; Long run
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