"The Bigger They Are, The Harder They Fall": How Price Differences Across U.S. Cities Are Arbitraged

摘要: Recent empirical work has made headway in exploring the non-linear dynamics of deviations from law one price and" purchasing power parity that are apt to arise transaction costs. However, there two important facets this need improvement. First, choice specification is arbitrary. Second, data used typically composite indices which subject potentially serious aggregation biases. This paper examines evidence for transport-cost-induced nonlinear behavior within U.S. We address both above shortcomings. we use a simple continuous-time model inform specification. The indicates depends on relative importance fixed and variable transport employ disaggregated commodity prices, yielding pure' measure parity. find strong reversion these deviations. nature suggests costs transportation integral an understanding law-of-one-price