Years ago, I posted a table documenting violations of the law of one price across Amazon.com and Amazon.co.uk, noting that there were opportunities for “DIY international arbitrage“. Now Jean Boivin, Robert Clark, and Nicolas Vincent are demonstrating the same point, after collecting a lot more data and noting that it’s best to compare Amazon.com to Amazon.ca:
What are the features that make the online book market and our data set appropriate for this type of study?
- First, each product is identical across retailers, which makes our analysis immune to issues of quality, packaging, and size differences which are present in the data used in earlier studies.
- Second, price comparisons can be readily done online and so shopping or search costs should be orders of magnitude lower than for non-online items.
- Third, according to the NAFTA agreement, books are not subject to trade restrictions or tariffs and there are no constraints on buying books from foreign websites between these two countries.
- Fourth, the nature of the industry is such that the physical concept of distance is irrelevant; the consumer does not have to travel to purchase the good and rather must incur shipping costs, which we observe.
- Fifth, Canada and the US are among the most economically integrated countries in the world, with similar tastes and economic environments.
- Finally, for some websites, we have proxies for (relative) sales, which make it possible to study the reaction of quantities to movements in international relative prices.
Based on the shipping costs for a four-book bundle, up to 40% of the 213 best-seller books in our sample are cheaper in Canada from a US perspective. The size of the deviations from the law of one price can also be significant, reaching up to 60% in some cases… If markets are not fully segmented, then the fact that books in Canada become cheaper following an appreciation of the US dollar should be reflected in higher sales for Canadian retailers. Using sales rankings as proxies for quantities, we find no evidence supporting such behaviour.