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  • Boivin, Jean
  • Clark, Robert
  • Vincent, Nicolas

Abstract

Numerous studies have documented substantial deviations from the law of one price for consumer goods. However, in most cases small transaction costs can explain these violations. In our study, we purposely focus on a market where such frictions are minimal, namely online bookselling in the US and Canada. We exploit the high frequency nature of the data to disentangle nominal rigidities from market segmentation and show that while firms seem to respond to domestic competitive pressure, there is no evidence that they react to fluctuations in the relative price of foreign competition following exchange rate movements. In addition, we cannot identify any significant impact on sales volume stemming from variations in international relative prices. Hence, our results suggest that even in an environment with minimal frictions, international market segmentation is extensive and responsible for violations of the law of one price.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 86 (2012)
Issue (Month): 2 ()
Pages: 327-335

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Handle: RePEc:eee:inecon:v:86:y:2012:i:2:p:327-335

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Web page: http://www.elsevier.com/locate/inca/505552

Related research

Keywords: Law of one price; Border effects; Market segmentation; Price rigidity;

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References

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  1. Crucini, Mario J. & Shintani, Mototsugu, 2008. "Persistence in law of one price deviations: Evidence from micro-data," Journal of Monetary Economics, Elsevier, vol. 55(3), pages 629-644, April.
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  15. Brynjolfsson, Erik & Smith, Michael D. & Yu, (Jeffrey) Hu, 2003. "Consumer Surplus in the Digital Economy: Estimating the Value of Increased Product Variety at Online Booksellers," Working papers 4305-03, Massachusetts Institute of Technology (MIT), Sloan School of Management.
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Cited by:
  1. Nicholas Li, 2014. "Sticker Shock: The Causes of the Canada-US Price Differential," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 409, May.
  2. Ariel Burstein & Gita Gopinath, 2013. "International Prices and Exchange Rates," NBER Working Papers 18829, National Bureau of Economic Research, Inc.
  3. Clark, Robert & Vincent, Nicolas, 2012. "Capacity-contingent pricing and competition in the airline industry," Journal of Air Transport Management, Elsevier, vol. 24(C), pages 7-11.

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