arbitrage

(noun)

Any market activity in which a commodity is bought and then sold quickly, for a profit which substantially exceeds the transaction cost

Examples of arbitrage in the following topics:

  • Differential

    • In a theoretical market with perfect information, perfect substitutes, and no transaction costs or prohibition on secondary exchange (re-selling) to prevent arbitrage, price differentials can only be a feature of monopolistic and oligopolistic markets, where market power can be exercised.
    • The airlines enforce the scheme by making the tickets non-transferable, thus preventing a tourist from buying a ticket at a discounted price and selling it to a business traveler (arbitrage).

  • The Savings Association Insurance Fund (SAIF)

    • Such price differences only create efforts by market participants to arbitrage the difference."

  • The Business Cycle

    • Rational expectations theory leads to the efficient-market hypothesis, which states that no deterministic cycle can persist, because it would consistently create arbitrage opportunities.