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The Segmentation of International Markets: Evidence from The Economist

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  • Michael M. Knetter
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    Abstract

    This paper studies the behavior of newsstand prices for The Economist magazine in eight markets. Substantial variations in markups across markets are related to exchange rate fluctuations. Some of this variation can be traced to menu costs. However, much of the variation appears to result from intentional price discrimination across three regions: the U.S., the U.K., and Continental Europe and Scandinavia. Differences in demand elasticities can plausibly be attributed to differences in preferences and the set of competing products across markets. Segmentation of the markets is facilitated by the time-sensitive nature of the product which makes arbitrage very costly.

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    File URL: http://www.nber.org/papers/w5878.pdf
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    Bibliographic Info

    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5878.

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    Date of creation: Jan 1997
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    Handle: RePEc:nbr:nberwo:5878

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    1. Marston, Richard C., 1990. "Pricing to market in Japanese manufacturing," Journal of International Economics, Elsevier, vol. 29(3-4), pages 217-236, November.
    2. Frankel, Jeffrey A & Rose, Andrew K, 1995. "A Panel Project on Purchasing Power Parity: Mean Reversion Within and Between Countries," CEPR Discussion Papers 1128, C.E.P.R. Discussion Papers.
    3. Isard, Peter, 1977. "How Far Can We Push the "Law of One Price"?," American Economic Review, American Economic Association, vol. 67(5), pages 942-48, December.
    4. Joseph E. Gagnon & Michael M. Knetter, 1992. "Markup Adjustment and Exchange Rate Fluctuations: Evidence From Panel Data on Automobile Exports," NBER Working Papers 4123, National Bureau of Economic Research, Inc.
    5. Atish R. Ghosh & Holger C. Wolf, 1994. "Pricing in International Markets: Lessons from The Economist," Working Papers 94-21, New York University, Leonard N. Stern School of Business, Department of Economics.
    6. Charles Engel & John H. Rogers, 1995. "How wide is the border?," International Finance Discussion Papers 498, Board of Governors of the Federal Reserve System (U.S.).
    7. Shang-Jin Wei & David C. Parsley, 1995. "Purchasing Power Disparity During the Floating Rate Period: Exchange Rate Volatility, Trade Barriers and Other Culprits," NBER Working Papers 5032, National Bureau of Economic Research, Inc.
    8. Kenneth Rogoff & Kenneth Froot & Michael Kim, 2001. "The Law ofone Price Over 700 Years," IMF Working Papers 01/174, International Monetary Fund.
    9. Kenneth Rogoff, 1996. "The Purchasing Power Parity Puzzle," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 647-668, June.
    10. Kasa, Kenneth, 1992. "Adjustment costs and pricing-to-market theory and evidence," Journal of International Economics, Elsevier, vol. 32(1-2), pages 1-30, February.
    11. Edison, Hali J, 1987. "Purchasing Power Parity in the Long Run: A Test of the Dollar/Pound Exchange Rate (1890-1978)," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 19(3), pages 376-87, August.
    12. Frank Verboven, 1996. "International Price Discrimination in the European Car Market," RAND Journal of Economics, The RAND Corporation, vol. 27(2), pages 240-268, Summer.
    13. Giovannini, Alberto, 1988. "Exchange rates and traded goods prices," Journal of International Economics, Elsevier, vol. 24(1-2), pages 45-68, February.
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    Cited by:
    1. Jonathan Haskel & Holger C. Wolf, 2001. "The Law of One Price - A Case Study," CESifo Working Paper Series 428, CESifo Group Munich.
    2. Balazs Egert, 2007. "Real Convergence, Price Level Convergence and Inflation Differentials in Europe," William Davidson Institute Working Papers Series wp895, William Davidson Institute at the University of Michigan.
    3. Baxter, Marianne & Landry, Anthony E., 2012. "IKEA: product, pricing, and pass-through," Proceedings, Federal Reserve Bank of San Francisco, issue Nov, pages 1-32.
    4. Curzi, Daniele & Olper, Alessandro, 2012. "Export behavior of Italian food firms: Does product quality matter?," Food Policy, Elsevier, vol. 37(5), pages 493-503.
    5. Asplund, Marcus & Friberg, Richard, 2000. "One good - two prices," Working Paper Series in Economics and Finance 351, Stockholm School of Economics.
    6. Rodolfo Apreda, 2003. "On the Extent of Arbitrage Constraints within Transaction Algebras (A non-standard approach)," CEMA Working Papers: Serie Documentos de Trabajo. 239, Universidad del CEMA.
    7. Sophie-Charlotte Meyer & Ronald Schettkat, 2013. "Price Convergence in Euroland. Evidence from micro data without noise," Schumpeter Discussion Papers sdp13005, Universitätsbibliothek Wuppertal, University Library.
    8. Marcus Asplund & Richard Friberg, 2001. "The Law of One Price in Scandinavian Duty-Free Stores," American Economic Review, American Economic Association, vol. 91(4), pages 1072-1083, September.
    9. Friberg, Richard, 1998. "In which currency should exporters set their prices?," Journal of International Economics, Elsevier, vol. 45(1), pages 59-76, June.
    10. Liddle, Brantley, 2001. "Free trade and the environment-development system," Ecological Economics, Elsevier, vol. 39(1), pages 21-36, October.
    11. Simatele, Munacinga C H, 2004. "Financial sector reforms and monetary policy reforms in Zambia," MPRA Paper 21575, University Library of Munich, Germany.
    12. 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.
    13. Curzi, Daniele & Raimondi, Valentina & Olper, Alessandro, 2013. "Quality Upgrading, Competition and Trade Policy: Evidence from the Agri-Food Sector," Proceedings Issues, 2013: Productivity and Its Impacts on Global Trade, June 2-4, 2013. Seville, Spain 152387, International Agricultural Trade Research Consortium.
    14. Gil-Pareja, Salvador, 2003. "Pricing to market behaviour in European car markets," European Economic Review, Elsevier, vol. 47(6), pages 945-962, December.
    15. Hassink, Wolter & Schettkat, Ronald, 2001. "On Price-Setting for Identical Products in Markets without Formal Trade Barriers," IZA Discussion Papers 315, Institute for the Study of Labor (IZA).
    16. Balázs �gert, 2007. "Real Convergence, Price Level Convergence and Inflation in Europe," Working Papers 267, Bruegel.
    17. repec:onb:oenbwp:y::i:138:b:1 is not listed on IDEAS

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