Virtual borders

Abstract

JEL classification: E30 F3 F4 L16 Keywords: Law of one price Border effects Market segmentation Price rigidityNumerous studies have documented substantial deviations from the law of one price for consumer goods. However, in most cases small transaction costs can explain these violations. In our study, we purposely focus on a market where such frictions are minimal, namely online bookselling in the US and Canada. We exploit the high frequency nature of the data to disentangle nominal rigidities from market segmentation and show that while firms seem to respond to domestic competitive pressure, there is no evidence that they react to fluctuations in the relative price of foreign competition following exchange rate movements. In addition, we cannot identify any significant impact on sales volume stemming from variations in international relative prices. Hence, our results suggest that even in an environment with minimal frictions, international market segmentation is extensive and responsible for violations of the law of one price.

Price Setting in Online Markets: Does IT Click?

“…At the same time, goods that receive a large number of clicks have more flexible prices-with the average duration of only 5-7 weeks for regular and posted prices. These magnitudes are similar to the results reported in earlier papers (Lünnemann and Wintr 2011;Boivin et al 2012;Gorodnichenko and Talavera 2017) for specific segments of e-commerce. 15 We find the same pattern when we compare the properties of online and offline prices within narrowly defined product categories (see Online Appendix F).…”

“…To the best of our knowledge, there is no other study with a large coverage of sellers and goods in the e-commerce sector. However, online prices have been studied in the context of cross-border price dispersion and exchange-rate pass-through (e.g., Boivin et al 2012;Gorodnichenko and Talavera 2017).…”

The Price Impact of Joining a Currency Union: Evidence from Latvia

“…This literature includes Simonovska (2011), Boivin, Clarck, and Vincent (2012), and Gorodnichenko and Talavera (2014).…”

Consumer arbitrage in cross‐border e‐commerce

“…As pointed out by Fraumeni (), e‐commerce flows are traditionally considered to be difficult to measure. While today several studies provide international comparisons of prices and assess their validity comparing them to offline prices (Boivin, Clark, & Vincent, ; Cavallo, ), none of them deal with true physical quantities that cross borders…”