Three Essays on Market Structure, Competition, and Pass-through of Exchange-Rates and Tariff-Rates in a Multi-Country Framework

This dissertation includes three chapters that expand upon the discussion on the role of market structure and competition on the extent of pass-through of exchange-rate and tariff-rate movements in a multi-country world. The first chapter extends Naknoi (2015) model to incorporate the response of import prices to cost shocks related to exogenous movements in tariff-rates as a variable rate across products and trading partners, applied to own and competing exporters’ export prices. Empirically, I make the contribution of estimating the “multilateral” own-ERPT and cross-ERPT to import prices in the U.S., accounting for strategic interactions between competing exporters in a sector when estimating the multilateral-ERPT elasticity. Interestingly, the coefficients for the cross exchange-rate and tariff-rate of competing exporters are found to be statistically significant, indicating a strong predictive power of the cross-ERPT and cross-ERPT elasticity when added to the regression. In addition, I estimate the extent of aggregate Pricing-to-Market (PTM) for each of the top 20 exporters to the U.S. from the lens of bilateral and cross ERPT and TRPT. Results continue to further assert the strong predictive power of the cross-ERPT and cross-ERPT on exporters’ PTM behaviors.Motivated by Mallik and Marques (2012), the second chapter extends the Auer and Schoenle (2016) model by assuming that tariff-rates, in addition to exchange-rates, identify cost shocks to exporters’ marginal costs. Empirically, this chapter attempts to examine whether the use of data on shocks to the exchange-rate and tariff-rate of competing exporters can be used to identify changes in competitor exporters’ Local-Currency-Price (LCP), and thus establish Auer & Schoenle (2016) second stylized fact that the rate at which a firm reacts to competitor prices is hump-shaped in market share. I argue that the cross-cost pass-through channel, combining the exogenous shocks to the exchange-rate and tariff- rate of competing exporters is insightfully and conceptually equivalent to the price complementaries channel developed in my extension of Auer and Schoenle (2016). Empirical results suggest that adjusting the bilateral exchange-rate fluctuations of competing exporters to changes in their tariff-rate, the rate at which an exporter reacts to these changes is expected to be a hump-shape in market share.Finally, the third chapter builds upon the theoretical model developed in Bergin and Feenstra (2009), and extends it test how the rise in China’s share of imports to the U.S., as well as China’s adoption of a more flexible exchange rate regime has affected and possibly altered the competitive environment in the U.S. import market during the last decade, and consequently changed the extent of ERPT. In their theoretical model, Bergin and Feenstra (2009) neglect the power of tariffs in influencing the LCP of imports. Their theoretical approach to modelling LCP’s implicitly assumes that tariffs are either non-existent or are similar for all trading partners. The extended theoretical model developed in Chapter 3 differs in its inclusion of tariff-rates as a variable rate across products and trading partners when calculating LCP’s of imports. Empirically, results confirm Bergin and Feenstra (2009) prediction that the pass-through to the multilateral exchange-rate would be expected to rise as a result of China adopting a more flexible exchange-rate regime, while continuing to occupy larger market share of U.S. imports.