Banque centrale du Luxembourg - Regional mc parity: do common pricing points reduce deviations from the law of one price?

Numéro	34
Date	September 2008
Auteur	Thomas Y. Mathä
Résumé	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 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.
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