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Exaggerated Death of Distance: Revisiting Distance Effects on Regional Price Dispersions

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  • Kazuko Kano
  • Takashi Kano
  • Kazutaka Takechi

Abstract

This paper empirically establishes the significant roles of transport costs in price dispersions across regions. We identify and estimate the iceberg-type distance-elastic transport costs as a parameter of a structural model of cross-regional price differentials featuring product delivery decisions. Utilizing a data set of wholesale prices and product delivery patterns of agricultural products in Japan, our structural estimation approach finds large distance elasticities of the transport costs. The result confirms that geographical barriers are an economically significant contributor to the failures of the law of one price.

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File URL: http://gcoe.ier.hit-u.ac.jp/research/discussion/2008/pdf/gd12-245.pdf
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Bibliographic Info

Paper provided by Institute of Economic Research, Hitotsubashi University in its series Global COE Hi-Stat Discussion Paper Series with number gd12-245.

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Date of creation: Oct 2012
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Handle: RePEc:hst:ghsdps:gd12-245

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Keywords: Law of one price; Regional price dispersion; Transport cost; Geographical distance; Agricultural wholesale price; Sample-selection bias;

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Citations

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Cited by:
  1. Mario J. Crucini & Mototsugu Shintani & Takayuki Tsuruga, 2010. "Noisy Information, Distance and Law of One Price Dynamics Across US Cities," Discussion papers e-11-005, Graduate School of Economics Project Center, Kyoto University, revised Jan 2012.
  2. Kazuko Kano & Takashi Kano & Kazutaka Takechi, 2012. "Nonparametric Identification and Estimation of the Number of Components in Multivariate Mixtures," Global COE Hi-Stat Discussion Paper Series gd12-246, Institute of Economic Research, Hitotsubashi University.
  3. Kano, Kazuko & Kano, Takashi & Takechi, Kazutaka, 2013. "The Price of Distance: Producer Heterogeneity, Pricing to Market, and Geographic Barriers," Discussion Papers 2013-03, Graduate School of Economics, Hitotsubashi University.

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