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In economics, the law of one price (LOOP) states that in the absence of trade frictions (such as transport costs and tariffs), and under conditions of free competition and price flexibility (where no individual sellers or buyers have power to manipulate prices and prices can freely adjust), identical goods sold at different locations should be sold for the same price when prices are expressed ...
The law of one price is weakened by transport costs and governmental trade restrictions, which make it expensive to move goods between markets located in different countries. Transport costs sever the link between exchange rates and the prices of goods implied by the law of one price.
The same asset must trade at the same price on all markets ("the law of one price"). Where this is not true, the arbitrageur will: buy the asset on the market where it has the lower price, and simultaneously sell it on the second market at the higher price; deliver the asset to the buyer and receive that higher price
A change in import prices affects retail and consumer prices. When exchange-rate pass-through is greater, there is more transmission of inflation between countries. [2] Exchange-rate pass-through is also related to the law of one price and purchasing power parity.
Price dispersion can be viewed as a measure of trading frictions (or, tautologically, as a violation of the law of one price). It is often attributed to consumer search costs or unmeasured attributes (such as the reputation) of the retailing outlets involved. There is a difference between price dispersion and price discrimination. The latter ...
It is usual to argue that market efficiency implies that there is only one price (the "law of one price"); the correct risk-neutral measure to price which must be selected using economic, rather than purely mathematical, arguments. A common mistake is to confuse the constructed probability distribution with the real-world probability.
The asset price today should equal the sum of all future cash flows discounted at the APT rate, where the expected return of the asset is a linear function of various factors, and sensitivity to changes in each factor is represented by a factor-specific beta coefficient.
Perfectly tradable goods, like shares of stock, are subject to the law of one price: they should cost the same amount wherever they are bought. This law requires an efficient market. Any discrepancy that may exist in pricing perfectly tradable goods because of foreign exchange market movements, for instance, is called an arbitrage opportunity ...