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Assessing a feasible degree of product market integration: a pilot analysis

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  • Konstantin Gluschenko
  • Darya Karchevskaya (Kulighina)

Abstract

Purpose – This paper aims to make a preliminary estimate of the degree of integration in the US product market (widely acknowledged to be the most integrated among geographically large economies) as an upper bound of spatial integration that is practically achievable in markets covering fairly large territories. Design/methodology/approach – The approach takes the form of an econometric model derived from the fact that local price of a tradable good should not be dependent on local demand under the law of “one price is a tool to measure market integration”. It is applied to data on the cost of a grocery basket and prices for three individual goods in 2000 across 29 US cities. Findings – The regression results suggest that the US market is not perfectly integrated. Thus, the estimated degree of its integration can be deemed, indeed, as a feasible maximum. Applying this benchmark to the European part of Russia in 2000, its degree of market integration turns out to be comparable – by the order of magnitude – with the feasible one. The roles of a few factors that could potentially cause segmentation of the US market are estimated. Research limitations/implications – The estimated degree of US market integration is crude because of the relatively small spatial sample. Further research has to substantially widen the spatial sample and estimate integration of the US market across a number of points in time. Originality/value – The paper suggests a realistic benchmark standard for judging the extent of market integration in various (geographically large) economies.

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Bibliographic Info

Article provided by Emerald Group Publishing in its journal Journal of Economic Studies.

Volume (Year): 37 (2010)
Issue (Month): 4 (September)
Pages: 419-437

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Handle: RePEc:eme:jespps:v:37:y:2010:i:4:p:419-437

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Related research

Keywords: International marketing; Pricing; Russia; United States;

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References

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  1. Konstantin Gluschenko, 2004. "Analysing changes in market integration through a cross-sectional test for the law of one price," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 9(2), pages 135-149.
  2. Charles Engel & John H. Rogers, 1994. "How Wide is the Border?," NBER Working Papers 4829, National Bureau of Economic Research, Inc.
  3. Parsley, David C & Wei, Shang-Jin, 1996. "Convergence to the Law of One Price without Trade Barriers or Currency Fluctuations," The Quarterly Journal of Economics, MIT Press, vol. 111(4), pages 1211-36, November.
  4. Stephen G. Cecchetti & Nelson C. Mark & Robert J. Sonora, 2002. "Price Index Convergence Among United States Cities," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(4), pages 1081-1099, November.
  5. Berkowitz, Daniel & DeJong, David N., 2003. "Regional integration: an empirical assessment of Russia," Journal of Urban Economics, Elsevier, vol. 53(3), pages 541-559, May.
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