Price Dispersion and the Effectiveness of Integration Efforts

Abstract

Using a specifically developed measure I find evidence that NAFT A, MERCOSUR, and EU membership are significantly correlated with decreased price dispersion. This suggests that these agreements have increased market integration beyond what can be explained by decreases in tariffs rates and foreign exchange volatility. Moreover I find that APEC, though seemingly less substantial, is also correlated with decreased price dispersion. This suggests that additional factors, including perhaps the development of trading networks, are important to increasing global market integration.