Forbes | September 18, 2014
An interesting little paper coming out of the Chicago Booth School of Business, looking at pricing models for internationally traded goods. We expect a particular result. The law of one price tells us that the real price of something that can be traded should be the same in different places. The same, subject to any taxes and or transport costs that is. For the obvious reason that if prices diverge then people will arbitrage between them and this will tend to equalise prices again. The research, by looking at the pricing policies of Apple , Ikea , H&M and Zara , finds that there’s a little wrinkle in this idea. It appears that “charm pricing” is perhaps more important than we had previously thought.
The report itself is discussed here and the paper is here.
