Integration of the US goods market, 2001–2015

Abdrakhmanova, Maria and Gluschenko, Konstantin (2025): Integration of the US goods market, 2001–2015.

Abstract

A spatially dispersed market for a tradable good is deemed integrated if there are no barriers to trade between its spatial segments (except for geographical barriers, namely distances between the segments). However, perfectly integrated markets are not a common case; real markets deviate to some extent from this ideal state. Therefore, estimating a degree of integration is more helpful then an answer of the type “all or nothing” (whether the market is integrated or not integrated). In an integrated market, price for a good is determined in the national market as a whole, not depending on demand in its spatial segments. Hence, a dependence of local price on local demand (controlling for transportation costs) indicates a deviation from perfect integration, and its “strength” can measure the degree of market integration. Based on this idea, we estimate the annual integration degrees of the US market for an aggregated good (grocery basket) over 15 years, 2001–2015. The spatial segments are cities; our sample covers 66 cities from 39 states of the US. The results suggest that the US market is not perfectly integrated; however, the integration degree of the US market is fairly stable over time. We also compare results for the US with results of a similar study for Russia. With a reservation that the empirical material is not fully comparable, we can conclude that the US market is integrated more strongly than the Russian market and that the integration degree in Russia is more volatile.

• Item Type: MPRA Paper
• Language: English
• Keywords: Spatial market integration Price dispersion Law of one price United States
• Subjects: L - Industrial Organization > L8 - Industry Studies: Services > L81 - Retail and Wholesale Trade ; e-Commerce; R - Urban, Rural, Regional, Real Estate, and Transportation Economics > R1 - General Regional Economics > R15 - Econometric and Input-Output Models ; Other Models; R - Urban, Rural, Regional, Real Estate, and Transportation Economics > R1 - General Regional Economics > R19 - Other

References

Arapovic AO, Karkin Z (2015) The impact of agricultural market information system in Bosina & Herzegovina on market integration: asymmetric information and market performance. Khazar J Humanit Soc Sci 18: 56–67. https://doi.org/10.5782/2223-2621.2014.18.1.56

Barassi MR, Pascale GD, Lagravinese R (2025) Testing the law of one-price in the US gasoline market: a long memory approach. Energy Syst 16: 37–61. https://doi.org/10.1007/s12667-022-00554-z

Barrett CB (2008) Spatial market integration. In: Blume LE, Durlauf SN (eds), The New Palgrave Dictionary of Economics. Palgrave Macmillan, London. https://doi.org/10.1057/978-1-349-95121-5_2500-1

Basher SA, Carrion-i-Silvestre JL (2011) Measuring persistence of U.S. city prices: new evidence from robust tests. Empir Econ 41: 739–745. https://doi.org/10.1007/s00181-010-0388-1

BEA (2017) Bureau of Economic Analysis database. Personal Income by County, Metro, and Other Areas. Interactive Tables. https://www.bea.gov/data/income-saving/personal-income-county-metro-and-other-areas. Accessed 20 June 2017

C2ER (2017) Cost of Living Index Manual. Council for Community and Economic Research, Arlington, VA.

Cecchetti SG, Mark NC, Sonora RJ (2002). Price index convergence among United States cities. Int Econ Rev 43: 1081–1099

Chmelarova V, Nath HK (2010) Relative price convergence among US cities: Does the choice of numeraire city matter? J Macroecon 32: 405–414. https://doi.org/10.1016/j.jmacro.2009.09.006

Cournot A (1971) Researches into the Mathematical Principles of the Theory of Wealth. A.M. Kelle, New York

Engel C, Rogers JH (1996) How wide is the border? Amer Econ Rev 86: 1112–1125

Fackler PL, Goodwin B.K (2001). Spatial price analysis. In: Gardner B, Rausser G (eds) Handbook of Agricultural Economics, vol. 1B. Elsevier, Amsterdam, pp 971–1024

Gluschenko K (2004) Analysing changes in market integration through a cross-sectional test for the law of one price. Int J Financ Econ 9: 135–149. https://doi.org/10.1002/ijfe.237

Gluschenko K (2021) Long-term evolution of Russia’s market integration. Stud Russ Econ Dev 32: 78–86. https://doi.org/10.1134/S1075700721010068

Gluschenko K, Karchevskaya D (2010) Assessing a feasible degree of product market integration: a pilot analysis. J Econ Stud 37: 419–437. https://doi.org/10.1108/01443581011073417

Goodwin BK (2025) Integration of the US cannabis market. Am J Agr Econ 107: 440–464. https://doi.org/10.1111/ajae.12488

Gorodnichenko Y, Tesar LL (2009) Border effect or country effect? Seattle may not be so far from Vancouver after all. Am Econ J Macroecon 1: 219–241. https://doi.org/10.1257/mac.1.1.219

Google (2017). Google Maps Platform. Distance Martix API. https://developers.google.com/maps/documentation/distance-matrix/. Accessed 22 June 2017

Harrison JM (2023) Exploring 200 years of U.S. commodity market integration: A structural time series model approach. Explor Econ Hist 88: article 101514. https://doi.org/10.1016/j.eeh.2023.101514

Holmes MJ, Otero J, Panagiotidis T (2013) On the dynamics of gasoline market integration in the United States: Evidence from a pair-wise approach. Energy Econ 36: 503–510. https://doi.org/10.1016/j.eneco.2012.10.008

McCallum J (1995) National borders matter: Canada-U.S. regional trade patterns. Amer Econ Rev 85: 615–623.

Moeller MC (2020) ACCRA cost of living index. J Bus Financ Libr 25: 375–378. https://doi.org/10.1080/08963568.2020.1847558

Nath HK, Sarkar J (2009) Unbiased estimation of the half-life to price index convergence among US cities. J Mon Cre Ban 41:1041–1046. https://doi.org/10.1111/j.1538-4616.2009.00245.x

O’Connell PGJ, Wei S-J (2002) “The bigger they are, the harder they fall”: retail price differences across U.S. cities. J Int Econ 56: 21–53. https://doi.org/10.1016/S0022-1996(01)00111-8

Parsley DC, Wei, S-J (1996) Convergence to the law of one price without trade barriers or currency fluctuations. Q J Econ 111: 1211–1236. https://doi.org/10.2307/2946713

Parsley DC, Wei S-J (2001). Explaining the border effect: the role of exchange rate variability, shipping costs, and geography. J Int Econ 55: 87–105. https://doi.org/10.1016/S0022-1996(01)00096-4

Paul RJ, Miljkovic D, Ipe V (2001) Market integration in US gasoline markets. Appl Econ 33: 1335–1340. http://dx.doi.org/10.1080/00036840010004545

Pesaran MH (2007) A pair-wise approach for testing output and growth convergence. J Econom 138: 312–355.

Sonora RJ (2008) Bivariate relative price convergence in the United States: 1918–1997. Rev Financ Econ 17: 92–111. https://doi.org/10.1016/j.rfe.2007.02.010

Yazgan ME, Yilmazkuday H (2011) Price-level convergence: new evidence from U.S. cities. Econ Lett 110: 76–78. https://doi.org/10.1016/j.econlet.2010.10.013

Yilmazkuday H (2012) How wide is the border across U.S. states? Lett Spat Resour Sci 5: 21–31. https://doi.org/10.1007/s12076-011-0062-z