Examination of existence of the law of one price at Czech meat markets

Abstract

This paper deals with the problem of the law of one price. The topic is examined on wholesaler level of pig meat and beef meat agri-food chains in the Czech Republic. The aim of the paper is to examine whether the law of one price holds at these markets. To fulfill the aim the multivariate time series analysis is employed, concretely co-integration analysis and Vector error correction model (VECM). The analysis is based on time series of wholesale price in individual regions of the Czech Republic which contain bi-weekly data in period from May 2004 to June 2011. The analysis shows that the law of one price does not hold at both markets. However, if the transaction costs are omitted there might be found some regions where it works. Finally, some dominant as well as submissive regions were detected at both pig meat as well as beef meat market.