Market Frictions
Price gaps between identical assets persist when rules or operational barriers prevent traders from moving supply from the cheap market to the expensive one. The surviving gap measures the difficulty of completing the trade, not merely the opportunity visible on a screen.
Bitcoin could cost more in Japan and Korea even though it was the same asset traded elsewhere. The gap survived because local laws made dealing in bitcoin more difficult: the apparent violation of the Law of One Price was really evidence that the markets were not freely connected.
E1The obstacle protects the spread
A price difference normally invites traders to buy in the cheaper market, move the asset, and sell in the dearer one. Those trades add demand on the cheap side and supply on the expensive side, pushing both prices toward equilibrium. Legal and operational barriers interrupt that loop. If traders cannot reliably acquire, transfer, or sell the asset across the boundary, supply cannot chase the higher price. The result resembles a regulatory supply constraint: demand may be present, but the usual supply response is blocked.
E1Where it shows up
Bitcoin in Japan and Korea
The higher local bitcoin prices were not automatically free money. Laws that made bitcoin harder to deal with also made it harder for arbitrageurs to import cheaper supply and erase the difference.
E1A gap is not proof of profit
This model applies when a genuine barrier separates otherwise comparable markets. If traders can move the asset freely, a persistent gap may instead reflect different risks, terms, timing, or even measurement error. And where constraints do bind, attempts to bypass them can cross from arbitrage into illegality; the spread does not cancel the rule.
Map the full crossing
Before treating two quoted prices as an opportunity, write down every required step from purchase to resale—legal eligibility, payment, custody, transfer, conversion, and withdrawal. Mark the step that prevents supply from reaching the expensive market. That bottleneck is the market friction, and its cost and risk determine whether the spread is real profit or merely compensation for being unable to complete the trade.
Episodes that teach this
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Be Rich or Go to Jail - Arbitrage Explained Simply with Examples - FutureIQ
· explained at 8:15
2,300 views
Bitcoin prices differed because "there were laws in Japan and Korea" that made it "more difficult to deal with bitcoin there."