Investigating the Factors Causing Price Differences from Country to Country
DOI:
https://doi.org/10.47540/ijias.v2i2.516Keywords:
Exchange Rate, Law of One Price, Price Dispersion, Purchasing Power ParityAbstract
This study investigated the factors causing differences in the prices of MNC operating in different countries that affect the pricing in different regions and deviating from the law of one price and influencing factors by comparing prices of both India and Pakistan being developing countries. The study focused on some specific variables such as GDP, exchange rate, purchasing power parity, and price in the dollar that have been analyzed from January 2016 to January 2021 based on biannual data. The quantitative approach has been applied and the study is based on secondary data, Statistics are taken from the “Big Mac Index” which is used as a benchmark for the comparison of the prices to have a deep insight about prices. The product taken for comparison between 2 countries is “The Big Mac” which is a product of McDonald’s (A multinational corporation) that operates more than 36,000 restaurants in more than 100 countries around the world. The tool used for the analysis of the collected data is Microfit software. Results show currency value, Dollar exchange, and Dollar GDP is statistically not significant, in the case of India analysis shows that dollar exchange, dollar GDP, and dollar PPP having values 0.047, 0.004, and 0.011 respectively are significant and currency value 0.458 & dollar price 0.11 are not significant.
References
Affinito, M., & Farabullini, F. (2009). Does the Law of One Price Hold in Euro-Area Retail Banking? An Empirical Analysis of Interest Rate Differentials across the Monetary Union. International Journal of Central Banking.
Affinito, M., & Farabullini, F. (2018). Does the law of one price hold in euro-area retail banking? An empirical analysis of interest rate differentials across the monetary union. Sixteenth issue (March 2009) of the International Journal of Central Banking.
Andrade, P., Galí, J., Le Bihan, H., & Matheron, J. (2018). The optimal inflation target and the natural rate of interest (No. w24328). National Bureau of Economic Research.
Aron, J., Macdonald, R., & Muellbauer, J. (2014). Exchange rate pass-through in developing and emerging markets: A survey of conceptual, methodological and policy issues, and selected empirical findings. Journal of Development Studies, 50(1), 101-143.
Asen, E. (2020). Corporate tax rates around the world, 2020. The Tax Foundation.
Ashenfelter, O., & Jurajda, S. (2001). Cross-country comparisons of wage rates: The Big Mac index. Unpublished paper, available at http://economics. uchicago. edu/download/bigmac. pdf.
Avlonitis, G. J., & Indounas, K. A. (2004). The impact of market structure on pricing objectives of service firms. Journal of Product & Brand Management.
Barhoumi, K. (2006). Differences in long run exchange rate pass-through into import prices in developing countries: An empirical investigation. Economic Modelling, 23(6), 926-951.
Bell, A. R., Brooks, C., & Moore, T. K. (2017). Did Purchasing Power Parity Hold in Medieval Europe. The Manchester School, 682-709.
Borraz, F., & Zipitría, L. (2020). Varieties as a Source of Law of One Price Deviations. International Economic Association.
Busetti, F., Fabiani, S., & Harvey, A. (2006). Convergence of prices and rates of inflation. Oxford Bulletin of Economics and Statistics, (68): 863-877.
Candelaria, C., Daly, M. C., & Hale, G. (2010, November). Beyond kuznets: Persistent regional inequality in china. Federal Reserve Bank of San Francisco.
Coakley, J., Flood, R. P., Fuertes, A. M., & Taylor, M. P. (2005). Purchasing power parity and the theory of general relativity: the first tests. Journal of International Money and Finance, 24(2), 293-316.
Crucini, M., Telmer, C., & Zachariadis, M. (1999). Dispersion in International Prices. manuscript.
Crucini, M. J., Telmer, C. I., & Zachariades, M. (1998). Dispersion in International Prices. Preliminary and Incomplete.
Dayanandan, A., & Ralhan, M. (2005). Price index convergence among provinces and cities across Canada: 1978–2001. University of Victoria Department of Economics Econometrics Working Paper, 504, 1-15.
Elberg, A. (2016). Sticky prices and deviations from the Law of One Price: Evidence from Mexican micro-price data. Journal of International Economics, 191-203.
Elliott, A. C., & Woodward, W. A. (2007). Comparing one or two means using the t-test. Statistical analysis quick reference guidebook: With SPSS examples, 47-76.
Elliott, A. C., & Woodward, W. A. (2007). Statistical analysis quick reference guidebook: With SPSS examples. Sage.
Engel, C., & Rogers, J. H. (2001). Deviations from purchasing power parity: causes and welfare costs. Journal of International Economics, 55(1), 29-57.
Esplin, R., Davis, B., Rai, A., & Nelson, T. (2020). The impacts of price regulation on price dispersion in Australia’s retail electricity markets. Energy Policy.
Finch, J. H., Becherer, R. C., & Casavant, R. (1998). An option‐based approach for pricing perishable services assets. Journal of Services Marketing.
Friedrich, W. N., Cohen, D. S., & Wilturner, L. T. (1988). Specific beliefs as moderator variables in maternal coping with mental retardation. Children's Health Care, 17(1), 40-44.
Froot, K. A., Kim, M., & Rogoff, K. S. (1995). The law of one price over 700 years.
Garda, R. A. (1991). Use tactical pricing to uncover hidden profits. The Journal of Business Strategy, 12(5), 17.
Giovannini, A. (1988). Exchange rates and traded goods prices. Journal of international Economics, 24(1-2), 45-68.
Haskel, J., & Wolf, H. (2001). The law of one price—a case study. Scandinavian Journal of Economics, 103(4), 545-558.
Isard, P. (1977). How Far Can We Push the" Law of One Price"?. The American Economic Review, 67(5), 942-948.
Knetter, M. M. (1994). Is export price adjustment asymmetric?: evaluating the market share and marketing bottlenecks hypotheses. Journal of International Money and Finance, 13(1), 55-70.
Liu, Z., Wang, P., & Zha, T. (2013). Land‐price dynamics and macroeconomic fluctuations. Econometrica, 81(3), 1147-1184.
Liu, T.-Y., Su, C.-W., Chang, H.-L., & Xiong, D.-P. (2018). Does the Law of One Price hold? A cross-regional study of China. Economic Research-Ekonomska Istraživanja, 592-606.
Nelson, T., McCracken-Hewson, E., Whish-Wilson, P., & Bashir, S. (2018). Price dispersion in Australian retail electricity markets. Energy Economics, 158-169.
O’connor, P. (2003). On-line pricing: An analysis of hotel-company practices. Cornell Hotel and Restaurant Administration Quarterly, 44(1), 88-96.
Pakko, M. R., & Pollard, P. S. (2003). Burgernomics: a Big Mac™ guide to purchasing power parity. Federal Reserve Bank of St. Louis Review, 85(November/December 2003).
Pippenger, J. (2020). The Law of One Price, Purchasing Power Parity and Exchange Rates. the California Digital Library.
Poncet, S. (2005). A fragmented China: Measure and determinants of Chinese domestic market disintegration. Review of international Economics, 13(3), 409-430.
Potter, D. V. (2000). Discovering hidden pricing power. Business Horizons, 43(6), 41-41.
Rabe, C., & Waddle, A. (2020). The evolution of purchasing power parity. Journal of International Money and Finance.
Richardson, J. D. (1978). Some empirical evidence on commodity arbitrage and the law of one price. Journal of International Economics, 8(2), 341-351.
Rogers, J. H., & Jenkins, M. (1995). Haircuts or hysteresis? Sources of movements in real exchange rates. Journal of International Economics, 38(3-4), 339-360.
Schreyer, P., & Koechlin, F. (2002). Purchasing power parities–measurement and uses. Statistics Brief, 3(2002/3), 1-8.
Sharma, K. (2013). A case study on McDonald’s supply-chain in India. Asia Pacific Journal of Marketing & Management Review. ISSN, 2319, 2836.
Stadtmann, G., Pierdzioch, C., & Schöber, T. (2020). Law of one price: BigMac versus Fortnite–A Note. Economics Bulletin, 40(4), 3338-3348.
Urbany, J. E. (2001). Justifying profitable pricing. Journal of Product & Brand Management.
Vachris, M. A., & Thomas, J. (1999). International price comparisons based on purchasing power parity. Monthly Lab. Rev., 122, 3.
Yilmazkuday, D., & Yilmazkuday, H. (2016). Understanding gasoline price dispersion. Cross Mark, 223-252.
Zhao, H., Dong, J., Lu, J., Chen, J., Li, Y., Shan, L., & Gu, G. (2006). Effects of extraction solvent mixtures on antioxidant activity evaluation and their extraction capacity and selectivity for free phenolic compounds in barley (Hordeum vulgare L.). Journal of agricultural and food chemistry, 54(19), 7277-7286.
Published
How to Cite
Issue
Section
Copyright (c) 2022 Mehwish Channa, Adnan Pitafi, Ghazala Tunio, Asif Ali Shar
This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.
