Is “Three” a lucky number? Exchange-rate exposure in a “Rule of Three” model

[Display omitted] •We examine exchange rate exposure in an international triopoly.•We calculate the intertemporal effects on long-run exposure.•Gap increases between long-run and short-run exposure after including home rival.•Long-run exposure for triopoly firm with home rival higher or lower than short-run.•Long-run exposure of firm with two foreign rivals lower than short-run. We examine exchange-rate exposure in an international model of differentiated goods using the frequently encountered in international markets “Rule of Three” (RoT) market structure that allows both within and between countries competition. In a static setting the addition of a domestic competitor increases the exposure of both internationally competing firms relative to duopoly unless the exchange-rate pass-through of one of its rivals is elastic. Using a dynamic model, we study the intertemporal effects on the firms’ long-run exposure. The exposure gap between the RoT market and the international duopoly increases in the long run for the firm facing domestic competition. The long-run exposure of that firm can be higher or lower than its short-run exposure, while the foreign monopolist has a smaller long-run exposure.