Measuring abnormal pricing – an alternative approach

Purpose - – The purpose of this study is to examine the degree of trade mispricing in the US fresh banana trade with Latin American and Caribbean countries using a new alternative measure in estimating arm’s length price. Design/methodology/approach - – A key feature of the research design is that we use the actual free market price of commodity (e.g. fresh banana price) as a benchmark for arm’s length price rather than relying on interquartile range, which is known to be problematic. Findings - – The paper finds that when the degree of mispricing is measured by two widely used methods, interquartile price filter and partner-country methods, we find little evidence of undervaluation or overvaluation of US banana import. However, when we use the free-market price of fresh banana as a benchmark for arm’s length price, first adopted in this study, the average undervalued amount of trade compared to the total banana import declared value by the US importers is on average 54 per cent during the period between 2000 and 2009. Originality/value - – This study suggests a new simple measure in estimating arm’s length traction price in studying trade mispricing.