Virtual Borders: Online Nominal Rigidities and International Market Segmentation

55 Pages Posted: 11 Jan 2010 Last revised: 28 Sep 2024

See all articles by Jean Boivin

Jean Boivin

Columbia Business School; HEC Montreal; National Bureau of Economic Research (NBER)

C. Robert Clark

HEC Montreal

Nicolas Vincent

HEC Montreal - Institute of Applied Economics

Date Written: January 2010

Abstract

Do prices respond to macro shocks? Does the mere presence of international frontiers hinder trade? We revisit these questions by studying a dataset of online book prices for a number of US and Canadian retailers. We believe our dataset is well suited to this task for a number of reasons: (1) data for multiple retailers are available; (2) the products sold are identical across retailers; (3) the sample spans a period of large fluctuations in the bilateral exchange rate; (4) the nature of the industry is such that physical distance is irrelevant beyond shipping costs which are observable; (5) nominal frictions in the form of menu costs are arguably minimal; and (6) proxies for sales are available for most retailers. Given the unique nature of our dataset, the first objective of the paper is to document the degree of price rigidity and price dispersion. Our main findings are: online book prices display significant stickiness; there is a large degree of heterogeneity across retailers in terms of price rigidity and pricing strategy; price dispersion is high both within and across borders. Also, price levels do not appear to respond to exchange rate fluctuations. Building on the predictions from a simple two-country, multi-firm model and by exploiting information contained both in prices and quantities, we show that market segmentation is probably behind this disconnect .

Suggested Citation

Boivin, Jean and Boivin, Jean and Clark, C. Robert and Vincent, Nicolas, Virtual Borders: Online Nominal Rigidities and International Market Segmentation (January 2010). NBER Working Paper No. w15642, Available at SSRN: https://ssrn.com/abstract=1533675

Jean Boivin (Contact Author)

Columbia Business School ( email )

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HEC Montreal ( email )

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National Bureau of Economic Research (NBER)

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C. Robert Clark

HEC Montreal ( email )

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Canada

Nicolas Vincent

HEC Montreal - Institute of Applied Economics ( email )

3000, ch. de la Côte-Ste-Catherine
Montréal, Quebec H3T 2A7
Canada

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