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Domestic and Foreign Sales When Prices in Both Markets are Uncertain

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  • Ardeshir J. Dalal
  • Sudhakar S. Raju

Abstract

This paper obtains comparative static results for a firm that sells a single output domestically and abroad when prices in both markets are uncertain. Results are obtained for both constant absolute risk aversion and for Ross decreasing absolute risk aversion, using a diagrammatic analysis which exploits the properties of expected marginal utility contours. The results depend crucially on whether foreign and domestic sales are net substitutes or complements. The model is more complex and yields fewer unambiguous results – particularly in the case of substitutes – than when there is price uncertainty in only one market.

Suggested Citation

  • Ardeshir J. Dalal & Sudhakar S. Raju, 2003. "Domestic and Foreign Sales When Prices in Both Markets are Uncertain," Bulletin of Economic Research, Wiley Blackwell, vol. 55(2), pages 125-148, April.
    • Handle: RePEc:bla:buecrs:v:55:y:2003:i:2:p:125-148
    DOI: 10.1111/1467-8586.00166
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    References listed on IDEAS

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    5. Katz, E & Paroush, J & Kahana, N, 1982. "Price Uncertainty and the Price Discriminating Firm in International Trade," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 23(2), pages 389-400, June.
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    7. Satyanarayan, Sudhakar, 1999. "Econometric tests of firm decision making under dual sources of uncertainty," Journal of Economics and Business, Elsevier, vol. 51(4), pages 315-325, July.
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    Cited by:

    1. Wong, Kin-Ming & Chong, Terence Tai-Leung, 2016. "Does monetary policy matter for trade?," International Economics, Elsevier, vol. 147(C), pages 107-125.
    2. Inmaculada Rodríguez-Puerta & Alberto Álvarez-López, 2016. "Optimal allocation of a fixed production under price uncertainty," Annals of Operations Research, Springer, vol. 237(1), pages 121-142, February.
    3. Dalal, Ardeshir J. & Alghalith, Moawia, 2009. "Production decisions under joint price and production uncertainty," European Journal of Operational Research, Elsevier, vol. 197(1), pages 84-92, August.
    4. Inmaculada Rodríguez-Puerta & Alberto A. Álvarez-López, 2016. "Optimal allocation of a fixed production under price uncertainty," Annals of Operations Research, Springer, vol. 237(1), pages 121-142, February.

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