Question

using examples Explain the law of one price and the concept of arbitration and how an Enterprise with some Market power make lemon arbitration so that its price discrimination policy works

Answer 1

• The principle of one price- is a concept that the price of a particular product/ asset has the similar price levels when the exchange rates are taken into account. This is another way of expressing the purchasing power parity theory. It prevails due to arbitrage possibilities.

It is in place to avoid investors from taking undue advantage of a price discrepancy between markets in a circumstance called arbitrage.

If a certain security is available for ten dollars in Market X and is selling for the equivalent of twenty dollars in Market Y, investors could buy it in Market X & sell it for twenty dollars in Market Y, getting a profit without any actual risk .

As securities from Market X are sold in Market Y, price levels in both the markets move in accordance with the alterations in supply & demand. In time, this would result in a balancing of the 2 markets, returning the price level of the security to the position assumed by the principle of one price.

• Arbitration-When disputes/ disagreements are referred to an autonomous arbitration board that considers the evidence & thereafter makes a decision which is binding for both sides .

Arbitration is utilized in-Industrial disagreements, Commercial disagreements, International disagreements over legal / trade concerns

• Lemon legislations- are rules which try to protect customers in the event that they buy a defective merchandise , stated as lemons, which doesn’t satisfy their expected quality / usefulness. Lemon legislations apply to defects which impact the utilization/ safety / worth of an article. If the item can’t be successfully repaired after a reasonable number of tries, the producer must repurchase it/ replace it.

Depending on the area where the case comes up, the customer may file a complaint via a state /some other entity asking for some kind of remedy to the matter. This may result in arbitration process & hearings where reasonable tries to repair the article must be presented.