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Title:Endogenous market segmentation and the law of one price PDF Logo
Authors:Friberg, Richard
Martensen, Kaj
Issue Date:2001
Series/Report no.:SSE/EFI Working Paper Series in Economics and Finance 471
Abstract:To the surprise of many, price deviations between markets characterized by imperfect competition have often been little affected by lower transport costs. In a Cournot model we show that if firms' decisions to segment markets are endogenous, then lower transport costs are, in many cases, associated with greater price differentials between markets. The intuition is that lower transport costs, by facilitating arbitrage, place a tighter restriction on the maximization problem and a firm is willing to take a greater cost in order to segment. We examine how the resulting equilibria depend on transport costs, product differentiation and costs of segmenting.
Subjects:price discrimination
market integration
law of one price
JEL:D43
F15
L13
Document Type:Working Paper
Appears in Collections:SSE/EFI Working Paper Series in Economics and Finance, EFI - The Economic Research Institute, Stockholm School of Economics

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