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Two monies, two markets?: Variability and the option to segment

  • Friberg, Richard

This paper examines the decision to create barriers to arbitrage for a firm selling on two national markets. Sunk costs of market segmentation imply that the option to segment markets is more valuable the greater the variability of purchasing power between markets. One result is that a monetary union may lead to market integration when a fixed exchange rate did not. Extensions examine hysterisis, transport costs and general equilibrium modeling.

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Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 55 (2001)
Issue (Month): 2 (December)
Pages: 317-327

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Handle: RePEc:eee:inecon:v:55:y:2001:i:2:p:317-327
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505552

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  1. Richard Baldwin & Paul Krugman, 1989. "Persistent Trade Effects of Large Exchange Rate Shocks," The Quarterly Journal of Economics, Oxford University Press, vol. 104(4), pages 635-654.
  2. Engel, C., 1996. "Accounting for U.S. Real Exchange Rate Changes," Working Papers 96-02, University of Washington, Department of Economics.
  3. Udo Broll & Bernhard Eckwert, 1999. "Exchange Rate Volatility and International Trade," Southern Economic Journal, Southern Economic Association, vol. 66(1), pages 178-185, July.
  4. Pinelopi Koujianou Goldberg & Frank Verboven, 2001. "The Evolution of Price Dispersion in the European Car Market," Review of Economic Studies, Oxford University Press, vol. 68(4), pages 811-848.
  5. Horn, Henrick & Shy, Oz, 1996. "Bundling and International Market Segmentation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(1), pages 51-69, February.
  6. Malueg, David A. & Schwartz, Marius, 1994. "Parallel imports, demand dispersion, and international price discrimination," Journal of International Economics, Elsevier, vol. 37(3-4), pages 167-195, November.
  7. Maurice Obstfeld & Kenneth Rogoff, 1999. "New Directions for Stochastic Open Economy Models," NBER Working Papers 7313, National Bureau of Economic Research, Inc.
  8. ANDERSON, Simon P. & GINSBURGH, Victor A., . "International pricing with costly consumer arbitrage," CORE Discussion Papers RP 1373, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  9. Maurice Obstfeld & Kenneth Rogoff, 2001. "The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?," International Trade 0012003, EconWPA.
  10. 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.).
  11. Pinelopi Koujianou Goldberg & Michael M. Knetter, 1997. "Goods Prices and Exchange Rates: What Have We Learned?," Journal of Economic Literature, American Economic Association, vol. 35(3), pages 1243-1272, September.
  12. Roberts, Kevin, 1999. "Rationality and the LeChatelier Principle," Journal of Economic Theory, Elsevier, vol. 87(2), pages 416-428, August.
  13. Avinash Dixit, 1989. "Hysteresis, Import Penetration, and Exchange Rate Pass-Through," The Quarterly Journal of Economics, Oxford University Press, vol. 104(2), pages 205-228.
  14. Gould, J R, 1977. "Price Discrimination and Vertical Control: A Note," Journal of Political Economy, University of Chicago Press, vol. 85(5), pages 1063-71, October.
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