Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/108048
Authors: 
Friberg, Richard
Year of Publication: 
2003
Series/Report no.: 
IEHAS Discussion Papers MT-DP - 2003/5
Abstract: 
Does the common currency promote goods market integration within the EMU? We argue that such an effect is likely, but that the mechanism typically proposed – lover costs of arbitrage because of increased price transparency – is likely to be of minor importance. Instead we sketch a duopoly model which stresses that lover possibility of future real exchange rate variability lowers the option value of being able to price discriminate. The euro would promote market integration because it is less valuable for firms to segment markets. In addition we argue that fairness concerns and less risk associated with third party arbitrage may be potentially important.
Subjects: 
exchange rate pass-through
law of one price
EMU
price discrimination
price transparency
real options
JEL: 
F13
F15
F41
L40
Document Type: 
Working Paper

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