Market Integration and Convergence to the Law of One Price: Evidence from the European Car Market
36 Pages Posted: 23 Oct 2001
Date Written: August 2001
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