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Virtual borders

Author

Listed:
  • 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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    References listed on IDEAS

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    1. Erik Brynjolfsson & Yu (Jeffrey) Hu & Michael D. Smith, 2003. "Consumer Surplus in the Digital Economy: Estimating the Value of Increased Product Variety at Online Booksellers," Management Science, INFORMS, vol. 49(11), pages 1580-1596, November.
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    Citations

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    Cited by:

    1. Burstein, Ariel & Gopinath, Gita, 2014. "International Prices and Exchange Rates," Handbook of International Economics, Elsevier.
    2. 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.
    3. Ariel Burstein & Gita Gopinath, 2013. "International Prices and Exchange Rates," NBER Working Papers 18829, National Bureau of Economic Research, Inc.
    4. 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.
    5. Stevens, Luminita & Chahrour, Ryan, 2015. "Equilibrium Price Dispersion and the Border Effect," Staff Report 522, Federal Reserve Bank of Minneapolis.
    6. 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.

    More about this item

    Keywords

    Law of one price; Border effects; Market segmentation; Price rigidity;

    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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