ABSTRACT
Growth in international trade increases the exposure of domestic producers to their foreign competitors in both the domestic and export markets. When movements in prices set by these foreign competitors diverge from the movement of domestic costs, domestic producers are faced with a choice whether to follow changes in their own costs or changes in competing foreign prices (or to follow neither) in setting their own prices. This paper provides estimates of the influence of both production costs and prices of competing foreign products on pricing by manufacturing firms in seven industrialized countries (Canada, Germany, Japan, Korea, Sweden, United Kingdom and United States) over the period 1980 to 1990.
