Global products price differential between countries in the context of European Union trade regulations. The case of e-commerce markets

Andrzej Pestkowski ()
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Andrzej Pestkowski: Wroclaw University of Economics, Poland

No 152/2015, Working Papers from Institute of Economic Research

Abstract: In the age of globalization, development of economic integration, trade liberalization, Internet and technological progress particularly in ways of distribution, we may expect that global homogeneous products will have equal price in the common currency on every market around the world. Despite the fact that in the modern world economy there is a high opportunity to make the law of one price work, in reality we can observe price differences between countries. This paper concerns the problem of that price differential with the aim of analysing its causes. The hypothesis assumes that the law of one price does not work as an absolute model. Therefore, the possible causes of global homogeneous products price differential between national markets are broadly understood transaction costs. Their major component are the costs of trade regulations towards third countries made by economic integrations such as EU. Research methodologies used in the paper focus on simplified cause and effect relationship analysis based on quantitative and qualitative variables. Selected mobile devices offered on national e-commerce markets were used as an example of modern homogenous global products distributed on close to the perfect competition market. The research is supported by information from wide range of academic and scientific publications in Polish and English about world trade economy, macroeconomics, international business and economic integration. The sources are complemented by detailed papers which concern the law of one price as well as empirical data. The conclusions prove that the law of one price does not apply to the examples used in the paper. The theory and my own research shows, according to the hypothesis, that trade regulations have significant impact on increasing the prices of the same global product on those regulated markets. Value Added Taxes and certifications of compliance of mobile devices with EU standards are the most substantial among trade regulations. It was also pointed out that pricing to market, fluctuation of exchange rates and direct costs such as transport, can also have influence on price differentials of homogenous global products between countries.

Keywords: global product; e-commerce; price differentiation; the law of one price; EU regulations (search for similar items in EconPapers)
JEL-codes: F10 F23 L63 L81 O24 (search for similar items in EconPapers)
Date: 2015-06, Revised 2015-06
New Economics Papers: this item is included in nep-int
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Published in Problemy gospodarki swiatowej TOM V, edited by Ilona Pietryka, Institute of Economic Research and Polish Economic Society Branch in Torun, Torun 2015

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