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Asymmetric price differential between medium and small class cars across countries : A case study-Korea and the U.S.

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  • Asymmetric price differential between medium and small class cars across countries
  • Lee, Woong; Hong, Hyung Ju
  • Korea Institute for International Economic Policy


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Title Asymmetric price differential between medium and small class cars across countries
Similar Titles
Sub Title

A case study-Korea and the U.S.

Material Type Articles
Author(English)

Lee, Woong; Hong, Hyung Ju

Publisher

[Seoul]:Korea Institute for International Economic Policy

Date 2012-09
Series Title; No Journal of East Asian Economic Integration
Pages 24
Subject Country United States(Americas)
South Korea(Asia and Pacific)
Language English
File Type Link
Subject Economy < Trade
Holding Korea Institute for International Economic Policy

Abstract

This paper examines how a Korean automobile firm price-discriminates between the Korean and the U.S. markets. We argue that a Korean automobile firm’s pricing behavior depends on the differences in price elasticity over the segmented markets between the countries. Our findings are that differences in price elasticity may help explain why a medium-class car’s price is higher in Korea than that in the U.S. while a small-sized car’s price is higher in the U.S. than in Korea, which implies that a Korean automobile firm 3rd degree price-discriminates on the same or similar products between Korea and the U.S. This type of 3rd degree price discrimination differs from a typical home-bias effect (charging higher prices to domestic consumers) because a small-sized car which is produced domestically sells at higher price abroad. This finding can be added as a source that violates the law of one price.