The Segmentation of International Markets

This paper studies the behavior of newsstand prices for The Economist magazine in eight markets. Substantial variations in markups across markets are related to exchange rate fluctuations. Some of this variation can be traced to menu costs. However, much of the variation appears to result from intentional price discrimination across three regions: the U.S., the U.K., and Continental Europe and Scandinavia. Differences in demand elasticities can plausibly be attributed to differences in preferences and the set of competing products across markets. Segmentation of the markets is facilitated by the time-sensitive nature of the product which makes arbitrage very costly.