The effect of exchange rate expectations on market share

This study examines the impact of expectations on the market share mechanism. The dynamic strategic pricing behaviors in the short‐run and the long‐run are also explored. The exchange rate expectations are incorporated into a switching cost model via the method of exchange rate pass‐through on product‐specific and country‐specific approach. By using the time series techniques, the results of the system estimations prove that the market share mechanisms are weakened by exchange rate expectations in open economies. Furthermore, not only is the degree of exchange rate pass‐through higher in the short‐run than in the long‐run but also many cases of pair‐wise rivalry are found. An improved understanding of the effects of exchange rate movements on foreign exporters pricing and pass‐through relations from this study may enhance competition in international markets.