Evaluating the Law of One Price Using Micro Panel Data: the case of the French fish Market
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Laurent Gobillon and François-Charles Wolff
Economists have long questioned the validity of the law of one price, which stipulates that in a market of perfect competition, identical goods should be sold for the same price. It is possible that in reality, this law is not verified because there are “imperfections” due to local rationing problems, limited information about available goods for sale, or costs of displacement. The practical question also arises of how to study homogeneous or similar goods in order to test the law.
In this article, Gobillon and Wolff investigate the French fish market and test the extent to which fish of similar species and characteristics are sold at the same price in all the fish auctions of France. Fish auctions are spread from the Atlantic to Mediterranean coasts, so there can be problems of information on the lots sold, as well as displacement and transport costs for buyers. The study is limited to transactions of consignments of fish sold in the greatest numbers at auctions (1). For certain fish auctions, authorised buyers can obtain information of the consignments sold and participate in auctions remotely, thanks to the internet. The analysis is carried out on eight species of fish and crustaceans, using an exhaustive data base of transactions that took place in French fish auctions in 2007. It takes into account the observables characteristics of fish such as species, size, mode of presentation (whole, filleted, etc.) and the notes on quality given by certified experts. The authors also perform a “neutralisation" (2) of two kinds of differences: differences in preferences for fish that can lead some buyers to pay more for certain species; and the unobservable differences in quality in fish (between boats), linked to differences in equipment and fishing zone.
The results show that there are non-negligible spatial differences in price after taking into account characteristics of fish, buyers and sellers. The price differences between fish auctions are usually linked to the distances that separate them and above all to the fact that some auctions are on the Atlantic coast while others are on the Mediterranean. Indeed, for a given species of fish, the price is around 35 per cent higher on the Mediterranean coast. This price difference between the two coasts can be explained by spatial segmentation in the fish supply because the costs of moving the boats from one coast to another are prohibitive. When the analysis is limited to the Atlantic coast, price variations between auctions are significantly lower for almost all species. This result suggests that the Atlantic sea-board constitutes an integrated market in which the law of one price tends to be verified.
(1) This study does not include private sales for which there might be long-term relations among buyers and sellers.
(2) This “neutralisation” takes into account the identity of buyers and sellers in order eliminate their influence on price differences among fish auctions.
Original title of the article: “Evaluating the Law of One Price Using Micro Panel Data: the case of the French fish Market”
Published in: American Journal of Agricultural Economics (2016) 98 (1) : 134-153
Available at: https://ajae.oxfordjournals.org/content/98/1/134.full