On Price-Setting for Identical Products in Markets Without Formal Trade Barriers

30 Pages Posted: 23 Jun 2001

See all articles by Wolter H.J. Hassink

Wolter H.J. Hassink

Utrecht University - Department of General Social Sciences; IZA Institute of Labor Economics

Ronald Schettkat

University of Wuppertal - Department of Economics

Date Written: June 2001

Abstract

This paper investigates price-setting for truly homogenous products sold in markets without any formal trade barriers. We use data from IKEA, a furniture company selling identical products in an identical shopping environment in different EU countries. We get four remarkable outcomes: 1) The law of one price does not hold. 2) Country-specific effects of non-tradable cost components are important. 3) Pricing to the market surely occurs but price discrimination is limited by incomplete information. 4) The unexplained part of between-country price variation for identical products is about 75% which leaves most of the inter-country price variation unexplained.

JEL Classification: D4

Suggested Citation

Hassink, Wolter H.J. and Schettkat, Ronald, On Price-Setting for Identical Products in Markets Without Formal Trade Barriers (June 2001). Available at SSRN: https://ssrn.com/abstract=273340 or http://dx.doi.org/10.2139/ssrn.273340

Wolter H.J. Hassink (Contact Author)

Utrecht University - Department of General Social Sciences ( email )

Algemene Sociale Wetenschappen
Postbus 80.140
3508 TC Utrecht
Netherlands
+31 30 2531115 (Phone)
+31 30 2533992 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Ronald Schettkat

University of Wuppertal - Department of Economics ( email )

42097 Wuppertal
Germany

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