The Law of One Price - a Case Study

By Jonathan Haskel, H. Wolf. Social Science Research Network, 2001

207 citations recorded by the source corpus.

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, we find typical deviations of twenty to fifty percent, though there is muted evidence for convergence over time. Such differences might be due to differences in local costs. If so, relative prices of similar products (round versus square mirrors) should be equal across countries. In fact, relative prices vary significantly across very similar goods within a product group; indeed, the ordering of common currency prices often differs for similar products. The finding suggests that differences in local distribution costs, local taxes, and probably tariffs do not explain the price pattern, leaving strategic pricing or other factors resulting in varying markups as alternative explanations for the observed divergences.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/c570187a41184380fe3602e3262918828b2c96ac

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Citations in the corpus

Concepts of equilibrium exchange rates (2005, background): “However, the evidence in favour of LOOP is if anything even weaker (see for example Frankel and Rose (1995) and Haskel and Wolfe (2001)).”
Market Integration and Convergence to the Law of One Price: Evidence from the European Car Market (2001, unknown): “versions reflects data realities rather than research interests - typically, the data employed in price comparisons are fairly aggregate price data or price indices (Parsley and Wei’s use of disaggregate product level data from ACCRA, and Haskel and Wolf’s (2001) product level data from IKEA stores ”
Equilibrium Exchange Rates in Transition Economies: Taking Stock of the Issues (2006, unknown): “Haskel and Wolf (2001). 17 Prices may be sticky in the foreign or in the local currency.”
Demand and Distance: Evidence on Cross-Border Shopping (2007, background): “…the widely differing views in the Member States about the appropriate levels of the minimum rates, and given that any change would require 1 See for instance Engel and Rogers (1996), Goldberg and Knetter (1997), Haskel and Wolf (2001), Anderson and Van Wincoop (2004), Goldberg and Verboven (2005).”
Purchasing Power Parity and the Real Exchange Rate (2001, background): “70 5See also the related work of Herguera (1994), Chen and Knez (1995), and Dumas, Jennergren, and Naslund (1995).”
International Prices, Costs, and Markup Differences (2011, background): “Others focused on specific goods, such as The Economist magazine (Ghosh and Wolf 1994), Ikea’s furniture products (Haskel and Wolf 2001; Hassink and Schettkat 2001), or Scandinavian McDonald’s duty-free outlets (Asplund and Friberg 2001).”
Countries, regions and trade: On the welfare impacts of economic integration (2007, background): “Whereas there is a vast amount of empirical evidence suggesting that international markets are segmented (Haskel and Wolf, 2001), one might think of markets within free-trade areas as being more integrated in that firms would be mill pricers.”