Premium
The Law of One Price—A Case Study
Author(s) -
Haskel Jonathan,
Wolf Holger
Publication year - 2001
Publication title -
scandinavian journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.725
H-Index - 64
eISSN - 1467-9442
pISSN - 0347-0520
DOI - 10.1111/1467-9442.00259
Subject(s) - law of one price , economics , multinational corporation , distribution (mathematics) , product (mathematics) , transaction cost , convergence (economics) , relative price , microeconomics , price level , econometrics , monetary economics , mid price , macroeconomics , mathematics , mathematical analysis , geometry , finance
We use retail transaction prices for a multinational retailer to examine the extent and permanence of violations of the law of one price. For identical products, we find typical deviations of 20–50 percent, with some evidence for convergence over time. Such differences might be due to differences in local costs. If so, relative prices of similar products (round versus square mirrors) should be equal across countries. In fact, relative prices vary significantly across very similar goods within a product group. The finding suggests that differences in local distribution costs, local taxes, and probably tariffs do not explain the price pattern, leaving strategic pricing or other factors resulting in varying markups as alternative explanations. JEL classification : F 41; L 11