SSE/EFI Working Paper Series in Economics and Finance
Marcus Asplund and Richard Friberg
One good - two prices
Abstract: We examine deviations from the law of one price (LOP) with
price data from duty-free outlets where each product, at a given location,
has its price quoted in (at least) two currencies. Reluctance to adjust
relative prices for "small" deviations from LOP allows prices to differ by
up to 7-10 percent. Deviations below this level can be very persistent and
last up to a decade. Even after accounting for costs of exchanging
currency, there are periods with arbitrage opportunities. However, if
exchange rates bring prices further out of line then the outlets adjust
nominal prices to reduce the deviations from LOP.
Keywords: law of one price; market segmentation; price discrimination; purchasing power parity; (follow links to similar papers)
JEL-Codes: F15; F30; F36; (follow links to similar papers)
23 pages, January 26, 2000
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Full text versions of the paper:
- This paper is forthcoming as:
Asplund, Marcus and Richard Friberg, 'One good - two prices', American Economic Review.
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