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Exaggerated Death of Distance: Revisiting Distance Effects on Regional Price Dispersions

  • Kazuko Kano

    (The University of Tokyo)

  • Takashi Kano

    (Hitotsubashi University)

  • Kazutaka Takechi

    (Hosei University)

This paper empirically establishes the signi cant 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 di erentials featuring product delivery decisions. Utilizing a data set of wholesale prices and product delivery patterns of agricultural products in Japan, our structural estimation approach nds large distance elasticities of the transport costs. The result con rms that geographical barriers are an economically signi cant contributor to the failures of the law of one price.

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Paper provided by Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo in its series CARF F-Series with number CARF-F-231.

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Length: 30 pages
Date of creation: Oct 2010
Date of revision: May 2012
Handle: RePEc:cfi:fseres:cf231
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