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Exaggerated death of distance: Revisiting distance effects on regional price dispersions

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  • Kano, Kazuko
  • Kano, Takashi
  • Takechi, Kazutaka

Abstract

This paper empirically establishes the significant roles of transport costs in price dispersions across regions. We identify and estimate the iceberg-type distance-elastic transport costs as a parameter of a structural model of cross-regional price differentials featuring product delivery decisions. Utilizing a data set of wholesale prices and product delivery patterns of agricultural products in Japan, our structural estimation approach finds large distance elasticities of the transport costs. The result confirms that geographical barriers are an economically significant contributor to the failures of the law of one price.

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  • Kano, Kazuko & Kano, Takashi & Takechi, Kazutaka, 2013. "Exaggerated death of distance: Revisiting distance effects on regional price dispersions," Journal of International Economics, Elsevier, vol. 90(2), pages 403-413.
  • Handle: RePEc:eee:inecon:v:90:y:2013:i:2:p:403-413
    DOI: 10.1016/j.jinteco.2013.02.002
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    More about this item

    Keywords

    Law of one price; Regional price dispersion; Transport cost; Geographical distance; Agricultural wholesale price; Sample-selection bias;
    All these keywords.

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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