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The Price of Distance: Producer Heterogeneity, Pricing to Market, and Geographic Barriers

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  • Kano, Kazuko
  • Kano, Takashi
  • Takechi, Kazutaka

Abstract

This study investigates the effect of distance on price differentials across regions. To identify the distance effect, we need to incorporate producer heterogeneity and pricing-to-market behavior. Because geographic barriers alter the threshold levels of productivity to set a positive price across markets, the effect of distance on price differentials can be underestimated if heterogeneity and pricing to market are not accounted for. By incorporating these factors, empirical analysis using micro-level data reveals that the distance effect is significantly large, suggesting that the price of geographic barriers is still high for regional transportation.

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File URL: http://hermes-ir.lib.hit-u.ac.jp/rs/bitstream/10086/25529/1/070econDP13-03.pdf
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Bibliographic Info

Paper provided by Graduate School of Economics, Hitotsubashi University in its series Discussion Papers with number 2013-03.

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Length: 21, [4] p.
Date of creation: Mar 2013
Date of revision:
Handle: RePEc:hit:econdp:2013-03

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Keywords: Law of one price; Transportation costs; Geographic barriers; Producer heterogeneity; Pricing to market;

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