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http://ssrn.com/abstract=428546
 
 

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On the Internal Contradictions of the Law of One Price


David D. Haddock


Northwestern University - School of Law and Department of Economics; PERC - Property and Environment Research Center

Fred S. McChesney


Northwestern University - Kellogg School of Management

William F. Shughart II


Huntsman School of Business; The Independent Institute

July 2003

Northwestern Law & Econ Research Paper No. 03-10; Cornell Law School, Legal Studies Research Paper No. 04-01

Abstract:     
The "law of one price" defines a market as the geographic area within which the same thing is sold for the same price at the same time, allowance being made for transportation costs. This paper shows that as usually stated the law of one price actually has two plausible interpretations. The law might mean that a market can be defined as the economic space wherein prices differ only by transportation costs. Alternatively, the law might mean that a market, once defined by some other criterion, will exhibit prices differing only by transportation costs. Under the first definition of the law, however, every production site is a market. Under the second definition, prices in fact do not differ by transportation costs. For market definition purposes, the law of one price is therefore either useless or wrong, depending on how it is interpreted.

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Date posted: July 28, 2003  

Suggested Citation

Haddock, David D. and McChesney, Fred S. and Shughart, William F., On the Internal Contradictions of the Law of One Price (July 2003). Northwestern Law & Econ Research Paper No. 03-10; Cornell Law School, Legal Studies Research Paper No. 04-01. Available at SSRN: http://ssrn.com/abstract=428546 or http://dx.doi.org/10.2139/ssrn.428546

Contact Information

David D. Haddock
Northwestern University - School of Law and Department of Economics ( email )
375 E. Chicago Ave
Unit 1505
Chicago, IL 60611
United States
PERC - Property and Environment Research Center
2048 Analysis Drive
Suite A
Bozeman, MT 59718
United States

Fred S. McChesney (Contact Author)
Northwestern University - Kellogg School of Management ( email )
2001 Sheridan Road
Evanston, IL 60208
United States
William Franklin Shughart II
Huntsman School of Business ( email )
3500 Old Main Hill
Logan, UT 84322-3500
United States
The Independent Institute ( email )
100 Swan Way
Oakland, CA 94621-1428
United States
HOME PAGE: http://www.independent.org
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