Market Integration and Convergence to the Law of One Price: Evidence from the European Car Market

Goldberg, Pinelopi; Verboven, Frank

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Market Integration and Convergence to the Law of One Price: Evidence from the European Car Market

36 Pages Posted: 23 Oct 2001

See all articles by Pinelopi Goldberg

Pinelopi Goldberg

Yale University - Department of Economics; National Bureau of Economic Research (NBER); Yale University - Cowles Foundation; Peterson Institute for International Economics; Bureau for Research and Economic Analysis of Development (BREAD); Centre for Economic Policy Research (CEPR)

Frank Verboven

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

There are 2 versions of this paper

Date Written: August 2001

Abstract

This Paper exploits the unique experiment of European market integration to investigate the relationship between integration and price convergence in international markets. Using a panel data set of car prices we examine how the process of integration has affected cross-country price dispersion in Europe. We find surprisingly strong evidence of convergence towards both the absolute and the relative versions of Purchasing Power Parity. Our analysis illuminates the main sources of segmentation in international markets and suggests the type of institutional changes that can successfully reduce it.

Keywords: Law of one price, market integration, price convergence

JEL Classification: F00, L00

Suggested Citation: Suggested Citation

Goldberg, Pinelopi (Penny) and Verboven, Frank, Market Integration and Convergence to the Law of One Price: Evidence from the European Car Market (August 2001). Available at SSRN: https://ssrn.com/abstract=288096