Working Paper: NBER ID: w15642
Authors: Jean Boivin; Robert Clark; Nicolas Vincent
Abstract: Do prices respond to macro shocks? Does the mere presence of international frontiers hinder trade? We revisit these questions by studying a dataset of online book prices for a number of US and Canadian retailers. We believe our dataset is well suited to this task for a number of reasons: (1) data for multiple retailers are available; (2) the products sold are identical across retailers; (3) the sample spans a period of large fluctuations in the bilateral exchange rate; (4) the nature of the industry is such that physical distance is irrelevant beyond shipping costs which are observable; (5) nominal frictions in the form of menu costs are arguably minimal; and (6) proxies for sales are available for most retailers. Given the unique nature of our dataset, the first objective of the paper is to document the degree of price rigidity and price dispersion. Our main findings are: online book prices display significant stickiness; there is a large degree of heterogeneity across retailers in terms of price rigidity and pricing strategy; price dispersion is high both within and across borders. Also, price levels do not appear to respond to exchange rate fluctuations. Building on the predictions from a simple two-country, multi-firm model and by exploiting information contained both in prices and quantities, we show that market segmentation is probably behind this disconnect .
Keywords: nominal rigidities; international market segmentation; price dispersion; exchange rates
JEL Codes: E30; F3; F4; L16
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| price adjustments (L11) | exchange rate fluctuations (F31) |
| exchange rate fluctuations (F31) | price levels (E30) |
| market segmentation (M31) | price stickiness (L11) |
| nominal rigidities (D50) | price adjustments (L11) |
| deviations from the law of one price (F31) | cross-border price differences (F16) |