Eliminating arbitrage opportunities over time
As Krugman wrote in Development, Geography, and Economic Theory, a fundamental principle in economics is that opportunities for free money don’t tend to stick around; someone will move in and act in a way that eliminates the opportunity. This is called “arbitrage”.
But in my limited exposure to economics thus far, I don’t see much explicit modeling of the time dimension. How long does it take for arbitrage opportunities to disappear? And how much money is there to be made before they disappear?
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