The role of commodity homogeneity and transportation costs in market integration analyses

Integration of roundwood markets is frequently investigated by testing the maintained hypothesis of The Law of One Price on prices of different geographic origin. Data on transaction costs are usually not available, these costs are either assumed captured through a constat term, or not taken into consideration. In the present study Te Composite Commodity Theorem is used to assess the impact of transportation costs on integration of regional sawlog prices in Norway. The results indicate that transportation costs were of little importance when investigating market integration.