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

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Mathä, Thomas Y.

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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 set 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.
Classification Political Economy; Public Finance
Free Keywords Law of one price; Psychological and fractional prices; European monetary union; E31; F41; R11
Document language English
Publication Year 2009
Page/Pages p. 155-166
Journal Review of World Economics, 145 (2009) 1
Status Postprint; peer reviewed
Licence PEER Licence Agreement (applicable only to documents from PEER project)