Course

Arbitrage

Instructor: Tyler Cowen, George Mason University

Arbitrage : The practice of buying low in one market and selling high in another market to take advantage of price differences in different markets for the same

Arbitrage: The practice of buying low in one market and selling high in another market to take advantage of price differences in different markets for the same asset. This is from the video “Introduction to Price Discrimination” in the Principles of Microeconomics course.

Options

Transcript

Most simply, arbitrage means buying low and then selling high. Buying low in one market quickly moving those goods to a second market and then reselling them at a higher price. The effect of that arbitrage is to bring the prices in those two markets closer together. Increasing the price in the market with the lower price and decreasing the price in the market which had had the higher price. It's clear that to practice price discrimination successfully, the monopolist has to prevent that kind of arbitrage.


Now smuggling - that's just an illegal form of this kind of arbitrage. It's a type of arbitrage which breaks down price discrimination.

Ask a Question

Please register or login to ask a question