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Price dispersion and the border effect

Ryan Chahrour and Luminita Stevens

Journal of Monetary Economics, 2020, vol. 116, issue C, 135-146

Abstract: Cross-country price differences could reflect regional market segmentation within countries or national segmentation at the border. In a search-based model of price setting, identifying national versus regional segmentation requires data on regional trade flows. A calibration to U.S. and Canadian data implies predominantly regional frictions: U.S. producers are three times more likely to sell in their home region than another U.S. region and Canadian producers are seven times more likely to sell in their home region than another Canadian region. Frictions vis-a-vis foreign regions are only slightly higher. Models that ignore regional segmentation can misstate the severity of frictions at the border.

Keywords: Law of one price; Real exchange rates; Trade barriers; Home bias (search for similar items in EconPapers)
JEL-codes: E30 F30 F41 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1016/j.jmoneco.2019.09.014

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