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The relation between price setting in markets and asymmetries of systems of measurement of goods

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  • Coccia, Mario

Abstract

Markets, in an increasingly globalized world, have still dissimilar systems of measurement of goods due to different historical developmental paths of nations. A problem in economics is whether and how these asymmetries of systems of measurement of goods affect the prices in markets. The present study confronts this problem here by analyzing some prices of goods in U.S. and Italian economies that apply different systems of measurement of mass and liquid (i.e., United States Customary System vs. Metric System). The inductive study analyses the prices of milk, per gallon and liter, and the prices of a consumption bundle of fresh vegetables and fruit, per pound and kg, between the USA and Italy. The statistical evidence seems in general to support the hypothesis that differences of prices per same quantity and/or volume of good can be also explained by asymmetries in systems of measurement adopted in markets. In particular, results show that markets with basic units of measurement of mass and/or liquid having more quantity of good, e.g. kg rather than pound (0.4535kg) and/or gallon (3.78 Liter) rather than liter, induce lower levels of average price per same quantity, ceteris paribus. These findings may be due to relativity of cognitive processes of decision makers, which apply frugal way of reasoning in price setting, based on satisficing behaviour and bounded rationality, by associating a legal basic unit of measurement of mass and/or liquid to an official monetary unit. Hence, this study shows that basic units of measurement of goods with more quantity seem to generate lower average prices in markets and, as a consequence, higher benefits for consumers. The main aim of this article is therefore to clarify and to generalize whenever possible, the relation between dissimilar systems of measurement of goods and price setting in markets of different countries.

Suggested Citation

  • Coccia, Mario, 2016. "The relation between price setting in markets and asymmetries of systems of measurement of goods," The Journal of Economic Asymmetries, Elsevier, vol. 14(PB), pages 168-178.
  • Handle: RePEc:eee:joecas:v:14:y:2016:i:pb:p:168-178
    DOI: 10.1016/j.jeca.2016.06.001
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    References listed on IDEAS

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    1. Herbert A. Simon, 1955. "A Behavioral Model of Rational Choice," The Quarterly Journal of Economics, Oxford University Press, vol. 69(1), pages 99-118.
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    Keywords

    E31; E64; P42; Q11; Price settings; Systems of measurement; Quantity asymmetries; Bounded rationality; Euro currency changeover; Measurement-based prices; Money illusion;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E64 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Incomes Policy; Price Policy
    • P42 - Economic Systems - - Other Economic Systems - - - Productive Enterprises; Factor and Product Markets; Prices
    • Q11 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Aggregate Supply and Demand Analysis; Prices

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