AbstractsEconomics

The validity of purchasing power parity and the law of one price have been constantly questioned as it is usually assumed that, at least in the long-run, commodity prices are perfectly arbitraged. The purpose of this paper is to investigate how and why do prices of identical goods vary across countries even today, in the globalized world, when trade costs are relatively low due to high mobility and the countless number of free-trade agreements. In order to fulfill the purpose of the study, prices of identical products from H&M are analyzed. The main factors taken into consideration when investigating the nature of price deviations are: tariffs, productivity, trade volume of clothing and how well the producing company is established within the sampled countries. The findings of the regression analysis indicate that price disparities exist and the law of one price, as well as purchasing power parity, fail to hold even when identical goods are compared.