Purchasing power parity and cultural convergence: evidence from the global video games market

A shared activity or pursuit can have the effect of bringing about cultural convergence in the form of patterns of behaviour and consumption. This idea is supported by the Axelrod (1997) thesis, which suggests that cultures are more likely to interact and subsequently converge if they have shared traits: one of these being the use of technology. This paper seeks to apply such a cultural perspective to the body of published literature on deviations from the law of one price. Adopting a similar methodology to the popular 'Big Mac' index, disparity between official market exchange rate and the real rate of exchange between two currencies is measured using local prices of video game consoles. The results of the study suggest that, while a degree of pricing and cultural convergence across broad geographic areas is observed, many major global currencies are trading at levels that are quite significantly different to that which is suggested by purchasing power parity (PPP) theory.