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Price divergence is readily apparent to anyone who shops. Travelers from Manchester to London, or from Chicago to Paris, are hit by sticker shock. Products ranging from London Fog raincoats to Viagra are available over the Internet at half their retail store prices. Common experience tells us that prices for identical products differ between countries, between cities, even between neighboring shops. On the other hand, common experience also tells us that open markets and greater competition will force a degree of price convergence, if not identical prices.This monograph presents speculative calculations that illustrate potential benefits from price convergence between countries. The authors take a fresh look at global economic integration by examining existing price divergence, and possible price convergence, across a range of consumer goods and then calculate the potential benefits of price convergence on a country-by-country basis and for the world as a whole. This study examines the potential benefits from price convergence resulting from more competition and market integration, not perfect competition and market integration. The authors calculate these benefits assuming that the world economy can attain the same degree of competition and market integration—and hence price convergence—as exists within the United States.
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1. Introduction 97.9KB
2. The Law of One Price and Its Limits 89.4KB
3. The Broad World Price Band 85.3KB
4. Potential Static Benefits: Methodology 45.1KB
5. Calculation of Benefits by Country 56.0KB
6. Implied Imports and Exports 44.2KB
7. Future Research: Mapping Policy Choices to Price Convergence 48.5KB
8. Concluding Observations 29.7KB
Appendix A-D 206.9KB