Cross-country price and inflation dispersion: Retail network or national border

Teresa Messner, Fabio Rumler and Georg Strasser
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Teresa Messner: Oesterreichische Nationalbank

No WP2022/11, Single Market Economics Papers from Directorate-General for Internal Market, Industry, Entrepreneurship and SMEs (European Commission), Chief Economist Team

Abstract: (Why) do prices and inflation rates differ within the euro area? We study the relevance of a national border for grocery prices in the otherwise homogenous and highly integrated border region of Austria and Germany. Using transaction data on prices and quantities from a large household panel, we compare the prices of identical products within a narrow band along the border. We find large assortment and price differences between these two regions. Even within multinational retail chains the prices of identical products on the two sides of the border differ on average by about 21%. These price differences are not very persistent over time indicating little arbitrage gain from undifferentiated cross-border shopping. Ensuing product-level inflation rates differ for only half of the chains between the two countries. The results highlight the importance of the history-dependent evolution of distribution networks and of the structure of the sales organisation as a driver of price and inflation heterogeneity.

Keywords: Price discrimination; goods market integration; border effect; cross-border arbitrage; market power (search for similar items in EconPapers)
JEL-codes: D12 D43 E31 F15 F4 (search for similar items in EconPapers)
Pages: 59 pages
Date: 2022-12
New Economics Papers: this item is included in nep-mon and nep-opm
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Related works:
Working Paper: Cross-country price and inflation dispersion: retail network or national border? (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:bda:wpsmep:wp2022/11

DOI: 10.2873/80128

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