IDEAS home Printed from https://ideas.repec.org/p/hhs/hastef/0471.html
   My bibliography  Save this paper

Endogenous Market Segmentation and the Law of One Price

Author

Listed:
  • Friberg, Richard

    () (Dept. of Economic Statistics, Stockholm School of Economics)

  • Martensen, Kaj

    (Dept. of Economic Statistics, Stockholm School of Economics)

Abstract

To the surprise of many, price deviations between markets characterized by imperfect competition have often been little affected by lower transport costs. In a Cournot model we show that if firms' decisions to segment markets are endogenous, then lower transport costs are, in many cases, associated with greater price differentials between markets. The intuition is that lower transport costs, by facilitating arbitrage, place a tighter restriction on the maximization problem and a firm is willing to take a greater cost in order to segment. We examine how the resulting equilibria depend on transport costs, product differentiation and costs of segmenting.

Suggested Citation

  • Friberg, Richard & Martensen, Kaj, 2001. "Endogenous Market Segmentation and the Law of One Price," SSE/EFI Working Paper Series in Economics and Finance 471, Stockholm School of Economics.
  • Handle: RePEc:hhs:hastef:0471
    as

    Download full text from publisher

    File URL: http://swopec.hhs.se/hastef/papers/hastef0471.pdf
    Download Restriction: no

    File URL: http://swopec.hhs.se/hastef/papers/hastef0471.profits.pdf
    File Function: Additional calculations 1
    Download Restriction: no

    File URL: http://swopec.hhs.se/hastef/papers/hastef0471.comparison.pdf
    File Function: Additional calculations 2
    Download Restriction: no

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Yuriy Gorodnichenko & Oleksandr Talavera, 2017. "Price Setting in Online Markets: Basic Facts, International Comparisons, and Cross-Border Integration," American Economic Review, American Economic Association, vol. 107(1), pages 249-282, January.
    2. Ogrokhina, Olena, 2015. "Market integration and price convergence in the European Union," Journal of International Money and Finance, Elsevier, vol. 56(C), pages 55-74.
    3. Richard Friberg, 2003. "Common Currency, Common Market?," Journal of the European Economic Association, MIT Press, vol. 1(2-3), pages 650-661, 04/05.
    4. Ganslandt, Mattias & Maskus, Keith E., 2007. "Vertical distribution, parallel trade, and price divergence in integrated markets," European Economic Review, Elsevier, vol. 51(4), pages 943-970, May.

    More about this item

    Keywords

    price discrimination; market integration; law of one price.;

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • F15 - International Economics - - Trade - - - Economic Integration
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hhs:hastef:0471. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Helena Lundin). General contact details of provider: http://edirc.repec.org/data/erhhsse.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.