Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/75824 
Year of Publication: 
2001
Series/Report no.: 
CESifo Working Paper No. 428
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
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, 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.
Subjects: 
Law of one price
arbitrage
exchange rate passthrough
price setting
Document Type: 
Working Paper
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