The more products are differentiated, the more we expect the law of one price to hold.

Question

Quizplus · Accepted Answer

The law of one price states that in the absence of transportation costs and barriers to trade, identical products sold in different locations must sell for the same price when prices are expressed in a common currency. Product differentiation implies that products are not identical, which means the law of one price does not apply as consumers may be willing to pay different prices for products they perceive as different.

The More Products Are Differentiated, the More We Expect the Law