Spending and pricing to deter arbitrage Stephen W. Salant
By: Salant, Stephen Walter
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Material type: 
ArticleSubject(s): ARBITRAJE INDUSTRIAL | INDUSTRIA FARMACEUTICA | INDUSTRIA QUIMICA | INDUSTRIA AUTOMOVILISTICA | MONOPOLIOS
In:
The Economic Journal v. 134, n. 662, August 2024, p. 2638-2654.Summary: This article presents examples of arbitrage deterrence from the pharmaceutical, chemical and auto industries. Based on these cases, it develops two models where a monopolist prices and spends to deter arbitrage. The models differ in whether the lower price is set by the firm or negotiated with a representative of consumers. In both models, imports into the high-price market are completely deterred, but the two markets are nonetheless linked by the threat of arbitrage. If this linkage is ignored and the absence of arbitrage is misattributed to exogenous factors, econometric estimates of firm bargaining power will be biased upwards.
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Bibliografía
This article presents examples of arbitrage deterrence from the pharmaceutical, chemical and auto industries. Based on these cases, it develops two models where a monopolist prices and spends to deter arbitrage. The models differ in whether the lower price is set by the firm or negotiated with a representative of consumers. In both models, imports into the high-price market are completely deterred, but the two markets are nonetheless linked by the threat of arbitrage. If this linkage is ignored and the absence of arbitrage is misattributed to exogenous factors, econometric estimates of firm bargaining power will be biased upwards.
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