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Saudi Arabia charges different prices for oil. Gazprom's control of the exchange rate in making a market for rubles allows it to do something similar.
The Western liberal view is that there should be one spot price for the global market, but traditional markets have been based on haggling. As a friend of mine who bought goods internationally used to say, "The secret is determining the real price," which is never the asked price. Even in modern spot markets, there is a spread between bid and asked.
Most people are now accustomed to retail pricing, which is administered. Most other markets are negotiable and negotiation involves many factors other than ability and willingness to pay. They are based on relationships.
The direct method is to charge more to hostile customers.
That is inline with traditional markets being based on relationships that are economic but not only economic.
What incentive will Gazprom (Russia) have to manage the exchange rate so as to protect the value of the rouble?
As firm, Gazprom would want to set price to maximize profit. But Gazprom is not only a firm but a policy instrument. My understanding is that the Russian leader has a range it would like to see the ruble trading in that neither too strong, nor too weak, but the leadership is not announcing that so observers are guessing about the boundaries.
4 comments:
The way they describe it, Russia has set up a price fixing scheme.
Saudi Arabia charges different prices for oil. Gazprom's control of the exchange rate in making a market for rubles allows it to do something similar.
The Western liberal view is that there should be one spot price for the global market, but traditional markets have been based on haggling. As a friend of mine who bought goods internationally used to say, "The secret is determining the real price," which is never the asked price. Even in modern spot markets, there is a spread between bid and asked.
Most people are now accustomed to retail pricing, which is administered. Most other markets are negotiable and negotiation involves many factors other than ability and willingness to pay. They are based on relationships.
The direct method is to charge more to hostile customers.
What incentive will Gazprom (Russia) have to manage the exchange rate so as to protect the value of the rouble?
The direct method is to charge more to hostile customers.
That is inline with traditional markets being based on relationships that are economic but not only economic.
What incentive will Gazprom (Russia) have to manage the exchange rate so as to protect the value of the rouble?
As firm, Gazprom would want to set price to maximize profit. But Gazprom is not only a firm but a policy instrument. My understanding is that the Russian leader has a range it would like to see the ruble trading in that neither too strong, nor too weak, but the leadership is not announcing that so observers are guessing about the boundaries.
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