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Virtual borders

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  • Boivin, Jean
  • Clark, Robert
  • Vincent, Nicolas

Abstract

Numerous studies have documented substantial deviations from the law of one price for consumer goods. However, in most cases small transaction costs can explain these violations. In our study, we purposely focus on a market where such frictions are minimal, namely online bookselling in the US and Canada. We exploit the high frequency nature of the data to disentangle nominal rigidities from market segmentation and show that while firms seem to respond to domestic competitive pressure, there is no evidence that they react to fluctuations in the relative price of foreign competition following exchange rate movements. In addition, we cannot identify any significant impact on sales volume stemming from variations in international relative prices. Hence, our results suggest that even in an environment with minimal frictions, international market segmentation is extensive and responsible for violations of the law of one price.

Suggested Citation

  • Boivin, Jean & Clark, Robert & Vincent, Nicolas, 2012. "Virtual borders," Journal of International Economics, Elsevier, vol. 86(2), pages 327-335.
    • Handle: RePEc:eee:inecon:v:86:y:2012:i:2:p:327-335
    DOI: 10.1016/j.jinteco.2011.10.004
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    Citations

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    Cited by:

    1. José Anson & Mauro Boffa, 2018. "Consumer Arbitrage in Cross-Border E-commerce," RSCAS Working Papers 2018/17, European University Institute.
    2. Partridge, Mark D. & Yang, Benjian & Chen, Anping, 2017. "Do Border Effects Alter Regional Development: Evidence from China," MPRA Paper 82080, University Library of Munich, Germany.
    3. Baxter, Marianne & Landry, Anthony, 2017. "IKEA: Product, pricing, and pass-through," Research in Economics, Elsevier, vol. 71(3), pages 507-520.
    4. Clark, Robert & Vincent, Nicolas, 2012. "Capacity-contingent pricing and competition in the airline industry," Journal of Air Transport Management, Elsevier, vol. 24(C), pages 7-11.
    5. Baggs, Jen & Fung, Loretta & Lapham, Beverly, 2018. "Exchange rates, cross-border travel, and retailers: Theory and empirics," Journal of International Economics, Elsevier, vol. 115(C), pages 59-79.
    6. Nicholas Li, 2014. "Sticker Shock: The Causes of the Canada-US Price Differential," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 409, May.
    7. Burstein, Ariel & Gopinath, Gita, 2014. "International Prices and Exchange Rates," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.), Handbook of International Economics, edition 1, volume 4, chapter 0, pages 391-451, Elsevier.
    8. Ryan Chahrour & Luminita Stevens, 2015. "Equilibrium Price Dispersion and the Border Effect," Staff Report 522, Federal Reserve Bank of Minneapolis.
    9. Chi‐Young Choi & Anthony Murphy & Jyh‐Lin Wu, 2017. "Segmentation of consumer markets in the US: What do intercity price differences tell us?," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 50(3), pages 738-777, August.

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    More about this item

    Keywords

    Law of one price; Border effects; Market segmentation; Price rigidity;
    All these keywords.

    JEL classification:

    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • F3 - International Economics - - International Finance
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure

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