In the assumed absence of transport costs and trade restrictions, perfect commodity arbitrage insures that each good is uniformly priced (in common currency units) throughout the world – the “law of one price” prevails’. In reality the law of one price is flagrantly and systematically violated by empirical data.
(Extract from: Isard, P., (1977 ), How Far Can we Push the “Law of One Price”?, American Economic Review, 67 (5), 942-948).
Discuss and critically evaluate this statement with reference to the theory and empirical evidence relating to the law of one price (LoP) and the theory of purchasing power parity (PPP).