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

  • Kazuko Kano

    (Graduate School of Economics, University of Tokyo)

  • Takashi Kano

    (Graduate School of Economics, Hitotsubashi University)

  • Kazutaka Takechi

    (Faculty of Economics, Hosei University)

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

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Paper provided by CIRJE, Faculty of Economics, University of Tokyo in its series CIRJE F-Series with number CIRJE-F-760.

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Length: 30pages
Date of creation: Sep 2010
Date of revision:
Handle: RePEc:tky:fseres:2010cf760
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