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Consumer Arbitrage Across a Porous Border Chandra, Ambarish; Head, Keith; Tappata, Mariano

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."

Item Metadata

Title
Consumer Arbitrage Across a Porous Border
Creator
Chandra, Ambarish; Head, Keith; Tappata, Mariano
Date Issued
2011-12-12
Description
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."
Subject
Consumers; Cross-border shopping; Exchange rates; Market segmentation; Pricing; Travel costs; US-Canada border crossings
Geographic Location
Canada
Genre
Article
Type
Text
Language
eng
Date Available
2011-12-12
Provider
Vancouver : University of British Columbia Library
Rights
Attribution-NonCommercial-NoDerivs 3.0 Unported
DOI
10.14288/1.0102486
URI
http://hdl.handle.net/2429/39636
Affiliation
Business, Sauder School of; Strategy and Business Economics, Division of
Peer Review Status
Unreviewed
Scholarly Level
Faculty
Rights URI
http://creativecommons.org/licenses/by-nc-nd/3.0/
Aggregated Source Repository
DSpace

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Attribution-NonCommercial-NoDerivs 3.0 Unported