The Evolution of Price Dispersion in the European Car Market

Pinelopi Goldberg and Frank Verboven

No 2029, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Car prices in Europe are characterized by large and persistent differences across countries. The purpose of this paper is to document and explain this price dispersion. Using a panel data set extending from 1980 to 1993, two main facts concerning car prices in Europe are demonstrated: (1) the existence of significant differences in quality adjusted prices across countries, with Italy and the United Kingdom systematically representing the most expensive markets; (2) substantial year-to-year volatility that is, to a large extent, accounted for by exchange rate fluctuations and the incomplete response of local currency prices to these fluctuations. These facts are analysed within the framework of a multi-product oligopoly model with product differentiation. The model identifies three potential sources for the international price differences: price elasticities generating differences in mark-ups; costs; and import quota constraints. Based on the results we conjecture that EMU will substantially reduce the year-to-year volatility observed in the car price data, but without further measures to increase European integration, it will not completely eliminate existing cross-country price differences.

Keywords: European car market; incomplete rate pass-through; Oligopoly; price dispersion (search for similar items in EconPapers)
JEL-codes: F12 F15 L1 L13 (search for similar items in EconPapers)
Date: 1998-12
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Citations: View citations in EconPapers (21)

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Related works:
Journal Article: The Evolution of Price Dispersion in the European Car Market (2001)
Working Paper: The Evolution of Price Dispersion in the European Car Market (1998)
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