Consumer Arbitrage Across a Porous Border
AbstractNational borders, including the easily crossed US-Canada border, have been shown to separate markets and sustain price differences. The resulting arbitrage opportunities vary temporally with the exchange rate and cross-sectionally with travelers' distance to the border. We estimate a structural model of the border crossing decision using data on the location of Canadian crossers and their date of travel. Price differences motivate cross-border travel; a 10% exchange rate appreciation raises the average crosser's welfare by 2.1%. Distance strongly inhibits crossings, with an implied cost of $0.9 per mile. These costs prevent consumers from fully arbitraging price differences, leading to partial segmentation.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 8730.
Date of creation: Jan 2012
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Find related papers by JEL classification:
- D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
- F22 - International Economics - - International Factor Movements and International Business - - - International Migration
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-03-28 (All new papers)
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