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Two monies, two markets? Variability and the option to segment

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  • Friberg, Richard

    () (Dept. of Economic Statistics, Stockholm School of Economics)

Abstract

This paper examines the decision to create barriers to arbitrage for a firm selling on two national markets. Sunk costs of market segmentation imply that the option to segment markets is more valuable the greater the variability of purchasing power between markets. One result is that a monetary union may lead to market integration when a fixed exchange rate did not. Extensions examine hysterisis, transport costs and general equilibrium modeling.

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Bibliographic Info

Paper provided by Stockholm School of Economics in its series Working Paper Series in Economics and Finance with number 349.

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Length: 33 pages
Date of creation: 04 Jan 2000
Date of revision:
Handle: RePEc:hhs:hastef:0349

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Postal: The Economic Research Institute, Stockholm School of Economics, P.O. Box 6501, 113 83 Stockholm, Sweden
Phone: +46-(0)8-736 90 00
Fax: +46-(0)8-31 01 57
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Web page: http://www.hhs.se/
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Related research

Keywords: Exchange rate pass-through; law of one price; EMU; price discrimination; real options;

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References

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  1. Malueg, D.A. & Schwartz, M., 1993. "Parallel Imports, Demand Dispersion and International Price Discrimination," Papers 93-6, U.S. Department of Justice - Antitrust Division.
  2. Richard Baldwin & Paul R. Krugman, 1986. "Persistent Trade Effects of Large Exchage Rate Shocks," NBER Working Papers 2017, National Bureau of Economic Research, Inc.
  3. Maurice Obstfeld & Kenneth Rogoff, 2000. "The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?," NBER Working Papers 7777, National Bureau of Economic Research, Inc.
  4. Engel, C., 1996. "Accounting for U.S. Real Exchange Rate Changes," Discussion Papers in Economics at the University of Washington 96-02, Department of Economics at the University of Washington.
  5. Engel, Charles & Rogers, John H, 1996. "How Wide Is the Border?," American Economic Review, American Economic Association, vol. 86(5), pages 1112-25, December.
  6. Maurice Obstfeld & Kenneth Rogoff, 1999. "New Directions for Stochastic Open Economy Models," NBER Working Papers 7313, National Bureau of Economic Research, Inc.
  7. Goldberg, Pinelopi Koujianou & Verboven, Frank, 2001. "The Evolution of Price Dispersion in the European Car Market," Review of Economic Studies, Wiley Blackwell, vol. 68(4), pages 811-48, October.
  8. Pinelopi K. Goldberg & Michael M. Knetter, 1996. "Goods Prices and Exchange Rates: What Have We Learned?," NBER Working Papers 5862, National Bureau of Economic Research, Inc.
  9. Udo Broll & Bernhard Eckwert, 1999. "Exchange Rate Volatility and International Trade," Southern Economic Journal, Southern Economic Association, vol. 66(1), pages 178-185, July.
  10. Gould, J R, 1977. "Price Discrimination and Vertical Control: A Note," Journal of Political Economy, University of Chicago Press, vol. 85(5), pages 1063-71, October.
  11. Roberts, Kevin, 1999. "Rationality and the LeChatelier Principle," Journal of Economic Theory, Elsevier, vol. 87(2), pages 416-428, August.
  12. Horn, H. & Shy, O., 1994. "Bundling and International Market Segmentation," Working Papers 369, Research Seminar in International Economics, University of Michigan.
  13. Anderson, Simon P & Ginsburgh, Victor A, 1999. "International Pricing with Costly Consumer Arbitrage," Review of International Economics, Wiley Blackwell, vol. 7(1), pages 126-39, February.
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Cited by:
  1. Salvador Gil-Pareja & Simón Sosvilla-Rivero, . "Price Convergence in the European Car Market," Working Papers 2005-22, FEDEA.
  2. Salvador Gil-Pareja & Simón Sosvilla-Rivero, 2004. "Export market integration in the European Union," Journal of Applied Economics, Universidad del CEMA, vol. 0, pages 271-301, November.
  3. Arturo Bris & Yrjö Koskinen & Mattias Nilsson, 2009. "The Euro and Corporate Valuations," Review of Financial Studies, Society for Financial Studies, vol. 22(8), pages 3171-3209, August.
  4. Robert, Anderton & Baldwin, Richard & Taglioni, Daria, 2007. "The impact of monetary union on trade prices," Journal of Financial Transformation, Capco Institute, vol. 19, pages 35-48.
  5. Pål Boug & Ådne Cappelen & Torbjørn Eika, 2005. "Exchange Rate Pass-through in a Small Open Economy," Discussion Papers 429, Research Department of Statistics Norway.
  6. Witness Simbanegavi, 2009. "Exchange rates and product variety," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 14(2), pages 188-198.
  7. Isabelle Méjean & Cyrille Schwellnus, 2009. "Price Convergence in the European Union: Within Firms or Composition of Firms?," Working Papers 2009-03, CEPII research center.
  8. Bergin, Paul R., 2003. "A model of relative national price levels under pricing to market," European Economic Review, Elsevier, vol. 47(3), pages 569-586, June.
  9. Richard Friberg, 2003. "Common Currency, Common Market?," Journal of the European Economic Association, MIT Press, vol. 1(2-3), pages 650-661, 04/05.
  10. Andreas M. Fischer & Matthias Lutz & Manuel Wälti, 2007. "Who Prices Locally? Survey Evidence of Swiss Exporters," Working Papers 2007-16, Swiss National Bank.
  11. Andrén, Niclas & Oxelheim, Lars, 2006. "Producer Prices in the Transition to a Common Currency," Working Paper Series 668, Research Institute of Industrial Economics.

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