The Law of One Price
By Kevin
Virginia Postrel blatantly violates the misinterpreted "law of one price", and tells that differing qualities completely justify intra-personal price divergence:
I bought a 12-pack of 12-ounce Diet Coke, a staple item in the Postrel refrigerator, for $2.98; that's about 2.1 cents per ounce or 24.8 cents per can...This is all about the structure of preferences, putting a premium on cold and closable and fresh. There is apparently no tendency for these prices to converge; prices are not bending preferences.Yet I also purchased a six-pack of .5-liter (16.9-ounce) bottles for $2.78: 2.7 cents an ounce or 46.3 cents a bottle.... I like to be able to close the container to avoid spills.
Finally, I bought a cold 20-ounce bottle of Diet Coke for $1.08, or 5.2 cents an ounce, and drank it immediately. If I'd had the change, I might have bought a 12-ounce can of even colder Diet Coke from a vending machine for 50 cents, or 4.2 cents an ounce.
Completely unrelated to Ms. Postrel's diet coke is a paper that shows market liberalization in China has succeeded in generating for many commodities a pattern of market prices that passes a "one price" test. Ms. Postrel has no internal exposure to exchange risk and no internal barriers to trade, and she thoroughly embraced the tremendous choice available to her. Apparently, the same goes for China.
[H/T: KP]