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

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  1. Charles Engel & John H. Rogers, 1994. "How Wide is the Border?," NBER Working Papers 4829, National Bureau of Economic Research, Inc.
  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. Roberts, Kevin, 1999. "Rationality and the LeChatelier Principle," Journal of Economic Theory, Elsevier, vol. 87(2), pages 416-428, August.
  4. Horn, Henrick & Shy, Oz, 1996. "Bundling and International Market Segmentation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(1), pages 51-69, February.
  5. Maurice Obstfeld & Kenneth Rogoff, 2001. "The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?," NBER Chapters, in: NBER Macroeconomics Annual 2000, Volume 15, pages 339-412 National Bureau of Economic Research, Inc.
  6. 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.
  7. ANDERSON, Simon P. & GINSBURGH, Victor A., . "International pricing with costly consumer arbitrage," CORE Discussion Papers RP -1373, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  8. Maurice Obstfeld and Kenneth Rogoff., 1999. "New Directions for Stochastic Open Economy Models," Center for International and Development Economics Research (CIDER) Working Papers C99-107, University of California at Berkeley.
  9. Dixit, Avinash K, 1989. "Hysteresis, Import Penetration, and Exchange Rate Pass-Through," The Quarterly Journal of Economics, MIT Press, vol. 104(2), pages 205-28, May.
  10. 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.
  11. Malueg, David A. & Schwartz, Marius, 1994. "Parallel imports, demand dispersion, and international price discrimination," Journal of International Economics, Elsevier, vol. 37(3-4), pages 167-195, November.
  12. Udo Broll & Bernhard Eckwert, 1999. "Exchange Rate Volatility and International Trade," Southern Economic Journal, Southern Economic Association, vol. 66(1), pages 178-185, July.
  13. 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.
  14. 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.
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