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Consumer Arbitrage Across a Porous Border

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Title: Consumer Arbitrage Across a Porous Border
Author: Chandra, Ambarish; Head, Keith; Tappata, Mariano
Subject Keywords Canada;Consumers;Cross-border shopping;Exchange rates;Market segmentation;Pricing;Travel costs;US-Canada border crossings
Issue Date: 2011-12-12
Abstract: National borders, including the easily crossed US-Canada border, have been shown to separate markets and sustain price differences. The resulting arbitrage opportunities vary temporally with the exchange rate and cross-sectionally with travelers' distance to the border. We estimate a structural model of the border crossing decision using data on the location of Canadian crossers and their date of travel. Price differences motivate cross-border travel; a 10% exchange rate appreciation raises the average crosser's welfare by 2.1%. Distance strongly inhibits crossings, with an implied cost of $0.9 per mile. These costs prevent consumers from fully arbitraging price differences, leading to partial segmentation. An earlier version of this paper was entitled "The Economics of Cross-Border Travel."
Affiliation: Sauder School of Business (SSB)
URI: http://hdl.handle.net/2429/39636
Peer Review Status: Unreviewed
Scholarly Level: Faculty

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