A market share approach to pricing commodity exports

Abstract

In this paper a market share model is developed for formulating appropriate export strategies for commodities by exporting countries. Assuming individual consumer in an importing country makes discrete choice regarding the source of a commodity or product depending on his/her perception of quality of the commodity or product from each sources and their prices, the aggregate demand of the importing country for each source is obtained. Based on this a market share model is developed assuming logistic distribution for the utilities. The market share model can be used by an exporting country to examine whether there is a premium or discount for its product/commodity and its magnitude which will help in determining (i) the relationship between relative prices and market share (ii) the level of price at which the country can earn maximum foreign exchange. This would help in formulating appropriate policies to influence freight-on-board (fob) prices thereby aligning with the changing international trade scene so as to effectively compete in the preferred markets to retain or increase market share which would maximize export earnings. The applicability of the model is illustrated using fennel seed export from India as an example.