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Regional mc parity: do common pricing points reduce deviations from the law of one price?

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  • Thomas Y. Mathä

Abstract

This paper analyses price differences of McDonald?s products in four different countries. I show that pricing at pricing points in different currencies may contribute to explaining deviations from the law of one price. Observing strictly equal prices is more probable if prices are at psychological and fractional pricing points in a common currency. The latter is also found to reduce the size of price deviations. Additionally, price differences increase as transaction costs increase. Based on this data set there is no evidence that the euro has reduced price deviations.

Suggested Citation

  • Thomas Y. Mathä, 2008. "Regional mc parity: do common pricing points reduce deviations from the law of one price?," BCL working papers 34, Central Bank of Luxembourg.
    • Handle: RePEc:bcl:bclwop:bclwp034
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    File URL: https://www.bcl.lu/fr/Recherche/publications/cahiers_etudes/34/BCLWP034.pdf
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    References listed on IDEAS

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    15. repec:bla:jcmkts:v:44:y:2006:i::p:563-580 is not listed on IDEAS
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    Cited by:

    1. Mark Witte & Rachel Williams, 2014. "Duopolists’ Retail Pricing Behavior in Multiple Markets," Journal of Industry, Competition and Trade, Springer, vol. 14(1), pages 67-81, March.
    2. Snir, Avichai & Levy, Daniel, 2021. "If You Think 9-Ending Prices Are Low, Think Again," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 6(1 (Forthc).

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    More about this item

    Keywords

    Law of one price; psychological and fractional prices; European Monetary Union;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes

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