The Law of One Price states that equivalent investment opportunities trading in different competitive markets will have the same price. Yet, one can find examples where that rule seems to be violated. It is a well-known fact that Americans pay a much higher price for most prescription drugs than people in most other countries. Also, the price (when adjusted for exchange rates) for the same make and model of the automobile varies greatly across different countries. Furthermore, the price of a barrel of crude oil varies between locations. For example, on October 12, 2012, the price for Brent crude oil produced in Europe was $114.21 and the price for West Texas Intermediate (WTI) crude oil produced in Texas was $91.86. Do these three cases demonstrate that the Law of One Price is false? Why or why not? Remember, provide and cite two references.
The ProQuest database at the Saint Leo University Library website can be a useful tool for completing this assignment.
Click here for instructions on accessing ProQuest.
Hint: One way to find merger news is to use the library’s database for the Wall Street Journal and search for a recent article with the word “law of one price” in the title of the article.
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