Jump to ContentJump to Main Navigation
Show Summary Details
In This Section

Journal of Agricultural & Food Industrial Organization

Ed. by Azzam, Azzeddine

2 Issues per year

CiteScore 2016: 0.70

SCImago Journal Rank (SJR) 2015: 0.189
Source Normalized Impact per Paper (SNIP) 2015: 0.549

See all formats and pricing
In This Section

(A)symmetry, (Non)linearity and Hysteresis of Pricing-To-Market: Evidence from German Sugar Confectionery Exports

Svetlana Fedoseeva
  • Corresponding author
  • Center for International Development and Environmental Research (ZEU), Justus Liebig University, Senckenbergstrasse 3, 35390 Giessen, Germany
  • Email:
Published Online: 2013-05-22 | DOI: https://doi.org/10.1515/jafio-2013-0003

Abstract: Pricing-to-market (PTM) is often reported to be adopted by exporters, who have invested in their presence on international markets and are interested in keeping and developing their market shares. Then, a markup adjustment is used to partially offset changes of the exchange rate, which are unfavorable for their foreign customers, in order to keep the price level in the importer’s currency relatively unchanged. With only few exceptions, empirical literature often considers PTM adjustments to be linear and symmetric. If asymmetry is allowed, PTM is often regarded as contemporaneous, which is a very simplifying assumption, given the goals pursued by exporters employing PTM strategies. This paper applies the dynamic autoregressive distributed lag (ADRL) approach popularized by Pesaran, Shin, and Smith (2001) and its nonlinear extension by Shin, Yu, and Greenwood-Nimmo (2011) to the data of German sugar confectionery exports to various destination markets. It turns out that in the long-run PTM is neither linear nor symmetric.

Keywords: pricing-to-market; asymmetric cointegration; nonlinear ARDL model; sugar confectionery

JEL codes: F14; L11; L66


  • Aiginger, K. 1997. “The Use of Unit Values to Discriminate between Price and Quality Competition.” Cambridge Journal of Economics 21:571–92. [Crossref]

  • Atkenson, A., and A. Burstein. 2008. “Pricing-to-Market, Trade Costs, and International Relative Prices.” American Economic Review 98:1998–2031.

  • Azzam, A.M. 1999. “Asymmetry and Rigidity in Farm-Retail Price Transmission.” American Journal of Agricultural Economics 81:525–33. [Crossref]

  • Baldwin, R. 1988. “Hysteresis in Import Prices: The Beachhead Effect.” The American Economic Review 78:773–85.

  • Baldwin, R. 1989. “Sunk-Cost Hysteresis.” NBER Working Paper No. 291, March 1989.

  • Banerjee, A.J., J.J. Dolando, and R. Mestre. 1998. “Error-Correction Mechanism Tests for Cointegration in a Single Equation Framework.” Journal of Time-Series Analysis 19:267–85. [Crossref]

  • BDSI. “Association of the German Confectionery Industry.” Accessed February1, 2013. http://www.bdsi.de/en/wir_ueber_uns_en/der_verband_en.html

  • BDSI. 2008. “BDSI: Double-Digit Growth for Exports – German Confectionery in Demand Worldwide.” Accessed February1, 2013. http://www.bdsi.de/en/media/releases/en_pm_2008_002.html

  • BDSI. 2010. “BDSI: Confectionery Industry – Only Slight Decline in 2009 Despite the Crisis.” Accessed February1, 2013. http://www.bdsi.de/en/media/releases/en_pm_2010_001.html

  • BDSI. 2011. “BDSI: Increase in Confectionery Exports – Sector Concerned by Sugar Supply Bottleneck.” Accessed February1, 2013. http://www.bdsi.de/en/media/releases/en_pm_2011_002.html.

  • BDSI. 2012. “BDSI: Confectionery Industry in 2011: Greatly Increased Raw Material Prices Have a Sustained Negative Impact on Business Results and Development Opportunities.” Accessed February1, 2013. http://www.bdsi.de/en/media/releases/en_pm_2012_001.html

  • Belke, A., M. Göcke, and M. Günther. 2013. “Exchange Rate Bands of Inaction and Play-Hysteresis in German Exports – Sectoral Evidence for Some OECD Destinations.” Metroeconomica 64:152–79. [Crossref]

  • Belke, A., and T. Polleit. 2006. “Monetary Policy and Dividend Growth in Germany: Long-Run Structural Modeling versus Bounds Testing Approach.” Applied Economics 38:1409–23. [Crossref]

  • Berman, N., P. Martin, and T. Mayer. 2012. “How Do Different Exporters React to Exchange Rate Changes?” The Quarterly Journal of Economics 127:437–92. [Crossref]

  • BMI. 2010. “Germany Food and Drink Report Q4 2010.” Accessed February1, 2013. http://wulibraries.typepad.com/files/bmi_germany_food_and_drink_report_q4_20101-1.pdf.

  • Bugamelli, M., and R. Tedeschi. 2008. “Pricing-to-Market and Market Structure.” Oxford Bulletin of Economics and Statistics 70:155–80. [Crossref]

  • Bussière, M. 2007. “Exchange Rate Pass-Through to Trade Prices: The Role of Non-Linearities and Asymmetries.” ECB Working Paper No. 822, October 2007.

  • Campa, J.M. 2004. “Exchange Rates and Trade: How Important Is Hysteresis in Trade?” European Economic Review 48:527–48. [Crossref]

  • Delgado, F.A. 1991. “Hysteresis, Menu Costs, and Pricing with Random Exchange Rates.” Journal of Monetary Economics 28:461–84. [Crossref]

  • Dixit, A. 1989. “Hysteresis, Import Penetration, and Exchange Rate Pass-Through.” The Quarterly Journal of Economics 104:205–28. [Crossref]

  • FAOSTAT. 2012. “Detailed World Agricultural Trade Flows.” Accessed November2, 2012. http://faostat.fao.org/DesktopModules/Faostat/WATFDetailed2/.

  • Feenstra, R.C., J.E. Gagnon, and M.M. Knetter. 1996. “Market Share and Exchange Rate Pass-Through in World Automobile Trade.” Journal of International Economics 40:187–207. [Crossref]

  • Ferrantino, M.J., R.M. Feinberg, and L. Deason. 2008. “Quality Competition, Pricing-to-Market and Non-Tariff Measures: A Unified Framework for the Analysis of Bilateral Unit Values.” Working Paper (June 2008). http://ssrn.com/abstract=1266183

  • FFT. 2011. “Confectionery Markets in Western Europe: Executive Synopsis.” FFT, February 2011. Accessed February1, 2013. http://www.fft-geneva.com/special/Confectionery_WE_synopsis.pdf

  • Frankel, J.A., D. Parsley, and S.J. Wei. 2012. “Slow Pass-Through Around the World: A New Import for Developing Countries.” Open Economies Review 23:213–51. [Crossref]

  • Froot, K.A., and P.D. Klemperer. 1989. “Exchange Rate Pass-Through When Market Share Matters.” The American Economic Review 79:637–54.

  • Gagnon, J.E., and M.M. Knetter. 1995. “Markup Adjustment and Exchange Rate Fluctuations: Evidence from Panel Data on Automobile Exports.” Journal of International Money and Finance 14:289–310. [Crossref]

  • Gehlhar, M.J., and D.H. Pick. 2002. “Food Trade Balances and Unit Values: What Can They Reveal About Price Competition?” Agribusiness 18:61–79. [Crossref]

  • Glauben, T., and J.P. Loy. 2003. “Pricing-to-Market versus Residual Demand Elasticity Analysis of Imperfect Competition in Food Exports: Evidence from Germany.” Journal of Agricultural and Food Industrial Organization 1:Article 3.

  • Granger, C.W.J., and G. Yoon. 2002. “Hidden Cointegration.” University of California, Economics Working Paper No. 2002–02, January 2002. http://ssrn.com/abstract=313831

  • Hossfeld, O. 2010. “Equilibrium Real Effective Exchange Rates and Real Exchange Rate Misalignments: Time Series vs. Panel Estimates.” FIW Working Paper Series No. 065, 2010. http://ideas.repec.org/p/wsr/wpaper/y2010i065.html.

  • IMB. 2011. “Confectionery in Western Europe: Market Indicator Report.” November 2011. Accessed February1, 2013. http://www.ats-sea.agr.gc.ca/eur/6006-eng.htm

  • Kasa, K. 1992. “Adjustment Costs and Pricing-to-Market: Theory and Evidence.” Journal of International Economics 32:1–30. [Crossref]

  • Knetter, M.M. 1989. “Price Discrimination by U.S. and German Exporters.” The American Economic Review 79:198–210.

  • Knetter, M.M. 1993. “International Comparisons of Pricing-to-Market Behavior.” The American Economic Review 83:473–86.

  • Knetter, M.M. 1994. “Is Export Price Adjustment Asymmetric?: Evaluating the Market Share and Marketing Bottlenecks Hypotheses.” Journal of International Money and Finance 13:55–70. [Crossref]

  • Krugman, P. 1987. “Pricing to Market When the Exchange Rate Changes.” In Real-financial linkages among open economies, edited by S.W. Arndt and J.D. Richardson, 49–70. Cambridge: MIT Press.

  • Lavoie, N., and Q. Liu. 2007. “Pricing-to-Market: Price Discrimination or Product Differentiation?” American Journal of Agricultural Economics 89:571–81. [Crossref]

  • Levy, D., M. Bergen, S. Dutta, and R. Venable. 1997. “The Magnitude of Menu Costs: Direct Evidence from Large US Supermarket Chains.” Quarterly Journal of Economics 112:791–825. [Crossref]

  • Manova, K., and Z. Zhang. 2012. “Export Prices across Firms and Destinations.” Quarterly Journal of Economics 127:379–436. [Crossref]

  • Marston, R. 1990. “Pricing to Market in Japanese Manufacturing.” Journal of International Economics 29:217–36. [Crossref]

  • Meyer, J., and S. von Cramon-Taubadel. 2004. “Asymmetric Price Transmission: A Survey.” Journal of Agricultural Economics 55:581–611. [Crossref]

  • Orcutt, G. 1950. “Measurement of Price Elasticities in International Trade.” Review of Economics and Statistics 32:117–32.

  • Peltzman, S. 2000. “Prices Rise Faster Than They Fall.” Journal of Political Economy 108:466–502. [Crossref]

  • Pesaran, M.H., Shin, Y., and R.J. Smith. 2001. “Bounds Testing Approaches to the Analysis of Level Relationships.” Journal of Applied Econometrics 16:289–326. [Crossref]

  • Phillips, P.C.B., and B.E. Hansen. 1990. “Statistical Inference in Instrumental Variables Regression with I(1) Processes.” Review of Economic Studies 57:99–125. [Crossref]

  • Shin, Y., B. Yu, and M. Greenwood-Nimmo. 2011. “Modelling Asymmetric Cointegration and Dynamic Multipliers in a Nonlinear ARDL Framework.” Working Paper (November 9, 2011). SSRN: http://ssrn.com/abstract=1807745

  • Silvente, F.R. 2005. “Price Discrimination and Market Power in Export Markets: The Case of the Ceramic Tile Industry.” Journal of Applied Economics 8:347–70.

  • Stahn, K. 2007. “Has the Export Behavior of German Enterprises Changed? Empirical Evidence from German Sectoral Prices.” Journal of Economics and Statistics 227:295–329.

  • The Independent. 2012. “The Independent: Being Modern: Haribo, January 22.” Accessed February1, 2013. http://www.independent.co.uk/life-style/food-and-drink/features/being-modern-haribo-6291297.html

  • UN Comtrade. 2012. “United Nations Commodity Trade Statistics Database.” Accessed November2, 2012. http://comtrade.un.org/db

About the article

Published Online: 2013-05-22

Confectionery refers to chocolate, sugar confectionery and gum products (BMI 2010).

BMI (2010) reports the confectionery sector to be only fifth with 4.5% of total food and drink industry production, after meat and poultry processing (26%), dairy industry (13%), bread and baked goods (11%) and alcoholic beverages (7.8%).

Sugar confectionery includes hard boiled sweets, mints, jellies and medicated sweets (BMI 2010).

See Knetter (1989) for the details of the derivation.

The choice of thresholds is explained in Section 5.

Detailed outcome of this estimation can be obtained from the author by request.

Citation Information: Journal of Agricultural & Food Industrial Organization, ISSN (Online) 1542-0485, ISSN (Print) 2194-5896, DOI: https://doi.org/10.1515/jafio-2013-0003. Export Citation

Comments (0)

Please log in or register to comment.
Log in