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International Deviations From The Law Of One Price: The Role Of Search Frictions And Market Share

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  • George Alessandria

Abstract

This article examines the size and persistence of international deviations from the law of one price in an industry with search frictions. Cost differences lead foreign and domestic firms to price differently within countries. When local firms are more common in each country, there are large and persistent price differences across countries. Large and persistent changes in international relative costs lead to large and persistent changes in international relative prices. Dynamic considerations imply that the amount of a cost shock firms pass through to prices is U-shaped in the market share of firms receiving the shock. Copyright 2004 by the Economics Department Of The University Of Pennsylvania And Osaka University Institute Of Social And Economic Research Association.

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  • George Alessandria, 2004. "International Deviations From The Law Of One Price: The Role Of Search Frictions And Market Share," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 45(4), pages 1263-1291, November.
  • Handle: RePEc:ier:iecrev:v:45:y:2004:i:4:p:1263-1291
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