Scandinavian Working Papers in Economics
HomeAboutSeriesSubject/JEL codesAdvanced Search
The Economic Research Institute, Stockholm School of Economics SSE/EFI Working Paper Series in Economics and Finance

No 471:
Endogenous Market Segmentation and the Law of One Price

Richard Friberg () and Kaj Martensen

Abstract: To the surprise of many, price deviations between markets characterized by imperfect competition have often been little affected by lower transport costs. In a Cournot model we show that if firms' decisions to segment markets are endogenous, then lower transport costs are, in many cases, associated with greater price differentials between markets. The intuition is that lower transport costs, by facilitating arbitrage, place a tighter restriction on the maximization problem and a firm is willing to take a greater cost in order to segment. We examine how the resulting equilibria depend on transport costs, product differentiation and costs of segmenting.

Keywords: price discrimination; market integration; law of one price.; (follow links to similar papers)

JEL-Codes: D43; F15; L13; (follow links to similar papers)

28 pages, October 30, 2001

Before downloading any of the electronic versions below you should read our statement on copyright.
Download GhostScript for viewing Postscript files and the Acrobat Reader for viewing and printing pdf files.

Full text versions of the paper:

hastef0471.pdf    PDF-file (414kB) 
Files with additional material for the paper:
hastef0471.profits.pdf    Additional calculations 1, PDF-file (279kB) 
hastef0471.comparison.pdf    Additional calculations 2, PDF-file (163kB) 
Download Statistics

Questions (including download problems) about the papers in this series should be directed to Helena Lundin ()
Report other problems with accessing this service to Sune Karlsson () or Helena Lundin ().

Programing by
Design by Joachim Ekebom

Handle: RePEc:hhs:hastef:0471 This page was generated on 2014-12-14 19:23:02