How far do egg markets in India conform to the law of one price?

Abstract

Growing demand for eggs in India is also accompanied by its production at six per cent compound annual growth rate. The law of one price states that in an efficient market, all identical goods or commodities should have a single price. Johansen’s cointegration test was done to identify whether spatially separated egg markets in India share a common linear deterministic trend and the law of one price holds true. Daily wholesale prices from January 2011 to November 2012 in major egg markets across the country were collected and analysed. Post checking for unit root employing the Augmented Dickey Fuller test statistic, cointegration results indicated a strong spatial integration between regional egg prices in the long-run implying the price co-ordination despite production in multiple regions. However, empirical results indicated that the law of one price does not hold true in Indian egg market.