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4

It's important to distinguish between the effects of arbitrage on: a) the direct parties to arbitrage transactions; b) other agents in the markets in which the arbitrage takes place. Suppose arbitrageurs buy a good in market A in which its price is \$1 and sell in market B where its price is \$2. Assume further that in each market those prices have freely ...

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The main point (already made by 1muflon1) is that no one needs to lose. (The presumption that someone must lose in any transaction or exchange is an example of the zero-sum fallacy. This is a common mistake by non-economists.) The comments to 1muflon1's answer seem to contain some objections/confusion. To clear these up, here's an example where everyone wins ...

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I would note that there is a dispute about the approaches to answer this question. I will give an answer based on finance theory, which may or may not be better placed to be on the quantitative finance board. That said, “finance” is a tag here, so the answer appears to appropriate. Note that I am using an idealised definition of profit that is used in ...

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Nobody has to loose in an arbitrage. Economic relationships are not necessarily zero-sum (in fact often they will not be zero-sum). For example, if apples in city A are sold for ${\\\$}5$and apples in city B can be sold for${\\\$}8$, and we assume zero transaction cost there will be an arbitrage opportunity to earn ${\\\$}3\$ riskless profit per apple by ...

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