A model of spatial arbitrage with transport capacity constraints and endogenous transport prices
This article solves a high frequency model of price arbitrage incorporating storage and trade when the amount of trade is limited by transport capacity constraints. In equilibrium there is considerable variation in transport costs, because transport costs rise when the demand to ship goods exceeds the capacity limit. This variation is necessary to attract shipping capacity into the industry. In turn, prices in different locations differ by a time varying amount. Thus while the law of one price holds, it holds because of endogenous variation in transport costs.
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- Bob Baulch, 1997. "Transfer Costs, Spatial Arbitrage, and Testing for Food Market Integration," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(2), pages 477-487.
- Fackler, Paul L. & Goodwin, Barry K., 2001. "Spatial price analysis," Handbook of Agricultural Economics,in: B. L. Gardner & G. C. Rausser (ed.), Handbook of Agricultural Economics, edition 1, volume 1, chapter 17, pages 971-1024 Elsevier. Full references (including those not matched with items on IDEAS)
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