Price Arbitrage

Market Disparity

When a manufacturer offers a promotion in one country that is not available in another, traders see an opportunity to move stock. This price arbitrage forces global companies to align their international pricing more closely to prevent unauthorized trade.

Execution Risk

The success of the trade depends on the ability to move the goods and complete the sale before the price gap closes. Transport costs and import duties can quickly eat into the potential profit if the trader does not calculate the landed cost correctly. Because markets are increasingly connected by digital platforms, the windows of opportunity for this activity are getting smaller.

The trader must also consider the risk that the manufacturer might block the shipment or refuse to honor the warranty in the destination market.

Revenue Capture

Firms monitor these activities to identify where their pricing strategy is out of step with the local demand. Persistent trading between two regions indicates that the price in the high-cost market may be unsustainable.