Asymmetric Price Differential between Medium and Small Class Cars across Countries: A Case Study-Korea and the U.S

Woong Lee and Hyung Ju Hong ()
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Hyung Ju Hong: Korea Fair Trade Commission

East Asian Economic Review, 2012, vol. 16, issue 3, 249-272

Abstract: This paper examines how a Korean automobile firm price-discriminates between the Korean and the U.S. markets. We argue that a Korean automobile firm's pricing behavior depends on the differences in price elasticity over the segmented markets between the countries. Our findings are that differences in price elasticity may help explain why a medium-class car's price is higher in Korea than that in the U.S. while a small-sized car's price is higher in the U.S. than in Korea, which implies that a Korean automobile firm 3rd degree price-discriminates on the same or similar products between Korea and the U.S. This type of 3rd degree price discrimination differs from a typical home-bias effect (charging higher prices to domestic consumers) because a small-sized car which is produced domestically sells at higher price abroad. This finding can be added as a source that violates the law of one price.

Keywords: International Price Discrimination; Law of One Price; Pricing to Market; Automobile Industry (search for similar items in EconPapers)
JEL-codes: D12 D22 F14 L11 L13 L62 (search for similar items in EconPapers)
Date: 2012
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