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The Price of Distance: Producer Heterogeneity, Pricing to Market, and Geographic Barriers

Author Info

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

Abstract

This study investigates the effect of distance on price differentials across regions. To identify the distance effect, we need to incorporate producer heterogeneity and pricing-to-market behavior. Because geographic barriers alter the threshold levels of productivity to set a positive price across markets, the effect of distance on price differentials can be underestimated if heterogeneity and pricing to market are not accounted for. By incorporating these factors, empirical analysis using micro-level data reveals that the distance effect is significantly large, suggesting that the price of geographic barriers is still high for regional transportation.

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File URL: http://hermes-ir.lib.hit-u.ac.jp/rs/bitstream/10086/25529/1/070econDP13-03.pdf
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Paper provided by Graduate School of Economics, Hitotsubashi University in its series Discussion Papers with number 2013-03.

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Length: 21, [4] p.
Date of creation: Mar 2013
Date of revision:
Handle: RePEc:hit:econdp:2013-03
Contact details of provider: Phone: +81-42-580-8000
Web page: http://www.econ.hit-u.ac.jp/
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Keywords: Law of one price; Transportation costs; Geographic barriers; Producer heterogeneity; Pricing to market;

Find related papers by 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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  1. Mario J. Crucini & Mototsugu Shintani & Takayuki Tsuruga, 2009. "The Law of One Price Without the Border: The Role of Distance Versus Sticky Prices," NBER Working Papers 14835, National Bureau of Economic Research, Inc.
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  17. David Hummels & Alexandre Skiba, 2004. "Shipping the Good Apples Out? An Empirical Confirmation of the Alchian-Allen Conjecture," Journal of Political Economy, University of Chicago Press, vol. 112(6), pages 1384-1402, December.
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