A model of spatial arbitrage with transport capacity constraints and endogenous transport prices
AbstractThis article solves a high frequency model of price arbitrage incorporating storage and trade when the amount of trade is limited by transport capacity constraints. In equilibrium there is considerable variation in transport costs, because transport costs rise when the demand to ship goods exceeds the capacity limit. This variation is necessary to attract shipping capacity into the industry. In turn, prices in different locations differ by a time varying amount. Thus while the law of one price holds, it holds because of endogenous variation in transport costs.
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Bibliographic InfoPaper provided by Reserve Bank of New Zealand in its series Reserve Bank of New Zealand Discussion Paper Series with number DP2007/05.
Length: 26 p.
Date of creation: Mar 2007
Date of revision:
Find related papers by JEL classification:
- F15 - International Economics - - Trade - - - Economic Integration
- N71 - Economic History - - Economic History: Transport, International and Domestic Trade, Energy, and Other Services - - - U.S.; Canada: Pre-1913
- L92 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Railroads and Other Surface Transportation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-05-12 (All new papers)
- NEP-GEO-2007-05-12 (Economic Geography)
- NEP-URE-2007-05-12 (Urban & Real Estate Economics)
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