Virtual borders

Jean Boivin (), Robert Clark and Nicolas Vincent

Journal of International Economics, 2012, vol. 86, issue 2, 327-335

Abstract: Numerous studies have documented substantial deviations from the law of one price for consumer goods. However, in most cases small transaction costs can explain these violations. In our study, we purposely focus on a market where such frictions are minimal, namely online bookselling in the US and Canada. We exploit the high frequency nature of the data to disentangle nominal rigidities from market segmentation and show that while firms seem to respond to domestic competitive pressure, there is no evidence that they react to fluctuations in the relative price of foreign competition following exchange rate movements. In addition, we cannot identify any significant impact on sales volume stemming from variations in international relative prices. Hence, our results suggest that even in an environment with minimal frictions, international market segmentation is extensive and responsible for violations of the law of one price.

Keywords: Law of one price; Border effects; Market segmentation; Price rigidity (search for similar items in EconPapers)
JEL-codes: E30 F3 F4 L16 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:inecon:v:86:y:2012:i:2:p:327-335

DOI: 10.1016/j.jinteco.2011.10.004

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