Market share and exchange rate pass-through in world automobile trade

Using a Bertrand differentiated products model we show that pass-through should be high for exporters based in a country with a very large share of total destination market sales. For source countries with small and intermediate market shares, the relationship is potentially nonlinear and sensitive to assumptions about demand and firm interactions. The model is estimated using a panel data set of automobile exports from four source countries to 12 destination markets over the period 1970-88. The relationship between pass-through and market share is significantly nonlinear: pass-through is lowest when the source country's market share is around 40 percent and highest when market share approaches 100 percent.