Market power and the pricing of commodities imported from developing countries: the case of US vanilla bean imports

A declining trend in the prices of vanilla beans reduce export earnings of developing country exporters. At the same time, currencies for these developing countries have depreciated. The 'new' trade theories suggest that market structure plays an important role in relating exchange rate devaluations to price declines. This paper investigates the market structure and estimates the impact of exchange rate movements on prices for vanilla beans imported by the USA from five producers of vanilla beans in developing countries. Unlike other studies, the estimation is based on a 'fixed-effects' econometric model derived from the importer's profit equation and the 'Pricing to Market' (PTM) hypothesis. Data are a pooled cross-section and time series covering the period 1967-1997. The results reveal some evidence that US importers of vanilla beans have the market power to apply price discrimination and to adjust import prices in reaction to exchange rate movement vis-a-vis exporters.© 2001 Elsevier Science B.V. All rights reserved.