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Impact of Institutions on Cross-Border Price Dispersion

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Abstract

This paper analyzes the role of institutions in price dispersion among cities in the European region in the 1996-2009 period. An overview of the literature on the border effect reveals that the role of institutions is completely neglected. Using the Worldwide Governance Indicators as explanatory variables I find that the better the institutions, the lower the predicted dispersion. The result is robust to different specifications of the regression model and it is consistent with a hypothesis that arbitrage, as an entrepreneurial activity and the main power behind the law of one price, is influenced by institutional quality.

Suggested Citation

  • Jiøí Schwarz, 2011. "Impact of Institutions on Cross-Border Price Dispersion," Working Papers IES 2011/30, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Sep 2011.
    • Handle: RePEc:fau:wpaper:wp2011_30
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    2. Václav Žďárek, 2011. "Empirická analýza průběhu cenové konvergence ČR a nových členských zemí EU k eurozóně [An Empirical Analysis of Price Convergence of the Czech Republic and the New EU Member States towards the Euro," Politická ekonomie, Prague University of Economics and Business, vol. 2011(4), pages 454-474.
    3. repec:cnb:ocpubv:rb10/2 is not listed on IDEAS
    4. repec:cnb:ocpubv:rb12/1 is not listed on IDEAS
    5. repec:cnb:ocpubv:rb12/2 is not listed on IDEAS
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    More about this item

    Keywords

    border effect; price dispersion; price convergence; law of one price; institutional quality;
    All these keywords.

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

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