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The law of one price and the role of market structure

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  • Caglayan, Mustafa
  • Filiztekin, Alpay

Abstract

This paper examines the role of market structure on the persistence of price deviations from the LOP using monthly actual product prices of 47 items collected from three different types of markets in Istanbul over 1993:01-2008:12. After showing the importance of market structure on the distribution of relative prices, we implement threshold autoregressive models. We find significant differences in average threshold estimates across markets which we explain referring to differing menu costs in each market. Yet, we find no differences in average half-life estimates across markets. We argue that this is due to low search costs in Istanbul. Robustness checks verify our findings.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 36975.

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Date of creation: 27 Feb 2012
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Handle: RePEc:pra:mprapa:36975

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Related research

Keywords: Law of one price; Nonlinearity; TAR models; Market segmentation; Menu and search costs;

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