The law of one price is tested using Johansen’s simultaneous multivariate cointegration framework and the question of market integration is examined for hardwood pulpwood, mixed hardwood sawtimber, and oak sawtimber in six states (Alabama, Arkansas, Louisiana, Mississippi, Tennessee, and Texas) using quarterly real stumpage prices from 1977 to 1997. The main finding is that the law of one price is not applicable and markets are not fully integrated for any of these hardwood stumpage commodities. The implication is that the six states in this region can not be treated as single marketfor these commodities. Hardwood pulpwood markets are less integrated than hardwood sawtimber markets. There is evidence for three separated markets for hardwood pulpwood, and for two separated markets for each of mixed hardwood and oak sawtimber.
Nagubadi et al. (Sat,) studied this question.