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Asymmetric Price Differential between Medium and Small Class Cars across Countries: A Case Study-Korea and the U.S

Author

Listed:
  • Lee , Woong

    (Korea Institute for International Economic Policy)

  • Hong, Hyung Ju

    (Korea Fair Trade Commission)

Abstract

This paper examines how a Korean automobile firm price-discriminates between the Korean and the U.S. markets. We argue that a Korean automobile firm's pricing behavior depends on the differences in price elasticity over the segmented markets between the countries. Our findings are that differences in price elasticity may help explain why a medium-class car's price is higher in Korea than that in the U.S. while a small-sized car's price is higher in the U.S. than in Korea, which implies that a Korean automobile firm 3rd degree price-discriminates on the same or similar products between Korea and the U.S. This type of 3rd degree price discrimination differs from a typical home-bias effect (charging higher prices to domestic consumers) because a small-sized car which is produced domestically sells at higher price abroad. This finding can be added as a source that violates the law of one price.

Suggested Citation

  • Lee , Woong & Hong, Hyung Ju, 2012. "Asymmetric Price Differential between Medium and Small Class Cars across Countries: A Case Study-Korea and the U.S," East Asian Economic Review, Korea Institute for International Economic Policy, vol. 16(3), pages 249-272, September.
    • Handle: RePEc:ris:eaerev:0070
    DOI: 10.11644/KIEP.JEAI.2012.16.3.250
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    More about this item

    Keywords

    International Price Discrimination; Law of One Price; Pricing to Market; Automobile Industry;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L62 - Industrial Organization - - Industry Studies: Manufacturing - - - Automobiles; Other Transportation Equipment; Related Parts and Equipment

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