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Common Currency, Common Market?

Richard Friberg ()
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Richard Friberg: Stockholm School of Economics

No 305, CERS-IE WORKING PAPERS from Institute of Economics, Centre for Economic and Regional Studies

Abstract: Does the common currency promote goods market integration within the EMU? We argue that such an effect is likely, but that the mechanism typically proposed – lover costs of arbitrage because of increased price transparency – is likely to be of minor importance. Instead we sketch a duopoly model which stresses that lover possibility of future real exchange rate variability lowers the option value of being able to price discriminate. The euro would promote market integration because it is less valuable for firms to segment markets. In addition we argue that fairness concerns and less risk associated with third party arbitrage may be potentially important.

Keywords: exchange rate pass-through; law of one price; EMU; price discrimination; price transparency; real options (search for similar items in EconPapers)
JEL-codes: F13 F15 F41 L40 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2003-05
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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