Regional mc parity: do common pricing points reduce deviations from the law of one price?
AbstractThis paper analyses price differences of McDonald?s products in four different countries. I show that pricing at pricing points in different currencies may contribute to explaining deviations from the law of one price. Observing strictly equal prices is more probable if prices are at psychological and fractional pricing points in a common currency. The latter is also found to reduce the size of price deviations. Additionally, price differences increase as transaction costs increase. Based on this data set there is no evidence that the euro has reduced price deviations.
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Bibliographic InfoPaper provided by Central Bank of Luxembourg in its series BCL working papers with number 34.
Length: 17 pages
Date of creation: Sep 2008
Date of revision:
Publication status: published in Review of World Economics / Weltwirtschaftliches Archiv, 2009, 145(1): 155-166.
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Web page: http://www.bcl.lu/
Law of one price; psychological and fractional prices; European Monetary Union;
Other versions of this item:
- Thomas Mathä, 2009. "Regional Mc parity: do common pricing points reduce deviations from the law of one price?," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 145(1), pages 155-166, April.
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
- R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
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