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One good - two prices

Author

Listed:
  • Asplund, Marcus

    (Dept. of Economics, Stockholm School of Economics)

  • Friberg, Richard

    (Dept. of Economics, Stockholm School of Economics)

Abstract

We examine deviations from the law of one price (LOP) with price data from duty-free outlets where each product, at a given location, has its price quoted in (at least) two currencies. Reluctance to adjust relative prices for "small" deviations from LOP allows prices to differ by up to 7-10 percent. Deviations below this level can be very persistent and last up to a decade. Even after accounting for costs of exchanging currency, there are periods with arbitrage opportunities. However, if exchange rates bring prices further out of line then the outlets adjust nominal prices to reduce the deviations from LOP.

Suggested Citation

  • Asplund, Marcus & Friberg, Richard, 2000. "One good - two prices," SSE/EFI Working Paper Series in Economics and Finance 351, Stockholm School of Economics.
    • Handle: RePEc:hhs:hastef:0351
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    References listed on IDEAS

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    More about this item

    Keywords

    law of one price; market segmentation; price discrimination; purchasing power parity;
    All these keywords.

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F30 - International Economics - - International Finance - - - General
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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