A model of spatial arbitrage with transport capacity constraints and endogenous transport prices

Andrew Coleman
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Andrew Coleman: Reserve Bank of New Zealand

No DP2007/05, Reserve Bank of New Zealand Discussion Paper Series from Reserve Bank of New Zealand

Abstract: 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.

JEL-codes: F15 N71 L92 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-geo and nep-ure
Date: 2007-03
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