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Anatomy of Russia's Market Segmentation

Based on a relationship between price difference and demand difference among locations, the role of various market frictions in causing segmentation of the Russian goods market is analyzed. The spatial sample covers most of Russian regions (70 of all the 89); the data are yearly, spanning 1992 through 2000. Spatial disconnectedness of regions is found to be responsible for about 70 percent of average price differential, while the rest is caused by "artificial" impediments to market integration such as shipping conditions, regional protectionism, and organized crime.