Why Does the 'Law of One Price' Fail? A Case Study

Jonathan Haskel () and Holger C Wolf

No 2187, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We use retail transaction prices for a multinational retailer to examine the extent and permanence of violations of the law of one price (LOOP) for identical products sold in a variety of countries. We find median deviations of twenty to fifty percent. The differences are not systematic across very similar goods within a product group (e.g. two types of mirrors), nor across product groups, ruling out differences in local distribution costs as an explanation of violations of the LOOP, and pointing instead to differences in mark-ups. While divergences are large at a point in time, both their extent and their duration is limited, suggesting the presence of significant indirect competitive pressures.

Keywords: Arbitrage; Exchange Rate Passthrough; Imperfect Competition; Law of one price; Mean Reversion; Price Setting (search for similar items in EconPapers)
JEL-codes: D40 E30 F41 L81 (search for similar items in EconPapers)
Date: 1999-07
References: Add references at CitEc
Citations: View citations in EconPapers (18)

Downloads: (external link)
http://www.cepr.org/active/publications/discussion_papers/dp.php?dpno=2187 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:2187

Ordering information: This working paper can be ordered from
http://www.cepr.org/ ... ers/dp.php?dpno=2187

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().