Price Dynamics, the Law of One Price, and Quantile Regressions

By: Santeramo, Fabio G.


Santeramo, Fabio G., Price Dynamics, the Law of One Price, and Quantile Regressions, Journal of Agricultural and Resource Economics, Volume 47, Issue 3, September 2022, Pages 513-528

The Law of One Price is a dated but still puzzling economic concept. Studies have found that violations of the law are frequent and numerous, although scholars have pointed that these failures are likely to be due to a lack of informative datasets. In addition, for storable commodities, the possible interactions of spatial and temporal arbitrage may hide the implications of the law, invalidating the conclusions of the studies. Based on a simplified two-market model of spatiotemporal arbitrage, I review the implications of the Law of One Price and test for them with a rich dataset of weekly prices of storable commodities and information on transaction costs, trade, and storage. I conclude that most statements implied by the Law of One Price are not empirically violated.