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Abstract

Violations of the law of one price (LOP) appear to be more the rule than the exception in various markets.This paper models the interface between agricultural supply and processing to explain violations of the LOP due to a fixed cost component of changing buyers. The model is applied to the raw rubber market in the Jambi province in Indonesia and employs a unique dataset of spatially and temporally disaggregated data. Methods to test for and explain violations of the LOP are suggested. An emphasis is set on the implications of aggregation over time.

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