Demand and Distance: Evidence on Cross-Border Shopping

26 Pages Posted: 5 Aug 2005

See all articles by Marcus Asplund

Marcus Asplund

London Business School - Department of Economics; Göteborg University - School of Business, Economics and Law; Centre for Economic Policy Research (CEPR)

Richard Friberg

Stockholm School of Economics - Department of Economics

Fredrik Wilander

Stockholm School of Economics - Department of Economics

Date Written: April 2005

Abstract

While many studies have documented deviations from the Law of One Price in international settings, evidence is scarce on the extent to which consumers take advantage of price differentials and engage in cross border shopping. We use data from 287 Swedish municipalities to estimate how responsive alcohol sales are to foreign prices, and relate the sensitivity to the location's distance to the border. Typical results suggest that the elasticity with respect to the foreign price is around 0.4 in the border region; moving 200 (400) kilometres inland reduces it to 0.2 (0.1). Given that cross-country price differences for alcohol and other products are often caused by taxes, our evidence has implications for the debate on tax competition/harmonization.

Keywords: Law of one price, tax competition, tax harmonization, cross border shopping, European integration

JEL Classification: F15, H20, H77, R12

Suggested Citation

Asplund, Marcus and Friberg, Richard and Wilander, Fredrik, Demand and Distance: Evidence on Cross-Border Shopping (April 2005). CEPR Discussion Paper No. 4983. Available at SSRN: https://ssrn.com/abstract=771969

Marcus Asplund (Contact Author)

London Business School - Department of Economics ( email )

Sussex Place
Regent's Park
London NW1 4SA
United Kingdom
+44 20 7262 5050 x3263 (Phone)

Göteborg University - School of Business, Economics and Law ( email )

SE- 405 30 Goteborg
Sweden
+46 31 773 2553 (Phone)
+46 31 773 1326 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Richard Friberg

Stockholm School of Economics - Department of Economics ( email )

P.O. Box 6501
Sveavagen 65
S-113 83 Stockholm
Sweden
+46 8 736 9645 (Phone)
+46 8 720 7752 (Fax)

Fredrik Wilander

Stockholm School of Economics - Department of Economics ( email )

P.O. Box 6501
Sveavagen 65
S-113 83 Stockholm
Sweden
+46 8 736 9602 (Phone)
+46 8 731 3207 (Fax)

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