This paper illustrates the importance of international influences on domestic markets. A model is presented in which changes in a country's terms of trade pass through to industrial prices in varying degrees depending on import penetration and seller concentration. Empirical results suggest that the 8.4 percent decline in the real external value of the Deutsche Mark from 1977 to 1983 allowed upward movement of about 2 percent in domestic producer prices of traded goods relative to the GNP price deflator. Increased market concentration led to a reduced effect, while increased import penetration led to some increase in the exchange rate passthrough.