The Evolution of Price Dispersion in the European Car Market

CEPR Working Paper No. 2029

Posted: 28 Mar 1999

See all articles by Frank Verboven

Frank Verboven

Catholic University of Leuven (KUL) - Department of Applied Economics; Centre for Economic Policy Research (CEPR)

Pinelopi Goldberg

Yale University - Department of Economics; National Bureau of Economic Research (NBER); Yale University - Cowles Foundation

Multiple version iconThere are 2 versions of this paper

Date Written: December 1998

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.

JEL Classification: F12, F15, L1, L13

Suggested Citation

Verboven, Frank and Goldberg, Pinelopi (Penny), The Evolution of Price Dispersion in the European Car Market (December 1998). CEPR Working Paper No. 2029. Available at SSRN: https://ssrn.com/abstract=142796

Frank Verboven

Catholic University of Leuven (KUL) - Department of Applied Economics ( email )

Leuven, B-3000
Belgium
+32 1 632 6944 (Phone)
+32 1 632 6732 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Pinelopi (Penny) Goldberg (Contact Author)

Yale University - Department of Economics ( email )

P.O. Box 208268
37 Hillhouse Avenue
New Haven, CT 06520-8268
United States
203-432-3569 (Phone)
203-432-6323 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Yale University - Cowles Foundation

Box 208281
New Haven, CT 06520-8281
United States

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