On the Internal Contradictions of the Law of One Price |
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| Authors: | Fred S. McChesney William F. Shughart II David D. Haddock |
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| Affiliation: | McChesney:;Class of 1967/James B. Haddad Professor of Law and Professor, Kellogg School of Management, Northwestern University, 357 E. Chicago Avenue, Chicago, IL 60611. Phone 1–847–425–1134, Fax 1–847–328–4213, E-mail Shughart:;F. A. P. Barnard Distinguished Professor of Economics and holder of the Robert M. Hearin Chair, Department of Economics, University of Mississippi, P.O. Box 1848, University, MS 38677–1848. Phone 1–662–915–7579, Fax 1–662–915–6943, E-mail Haddock:;Professor of Law and Professor of Economics, Northwestern University, 3238 Arthur Andersen Hall, 2001 Sheridan Road, Evanston, IL 60208–2600. Phone 1–847–491–8225, Fax 1–847–491–7001, E-mail |
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| Abstract: | ![]()
As stated originally, the venerable law of one price succinctly describes long-run equilibrium in a perfectly competitive market. The law was later amended, defining a market as the geographic area within which the same thing sells for the same price at the same time, allowance being made for transportation costs. Modified in that way, the law has two plausible interpretations. By one interpretation, every production site is a market. By the other, prices in fact do not differ by transportation costs. The transportation-cost amendment thus introduces internal contradictions that render the revised law of one price either useless or wrong. |
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