Does Marketing Widen Borders? Cross-Country Price Dispersion in the European Car Market

82 Pages Posted: 16 May 2017

See all articles by Eyal Dvir

Eyal Dvir

Charles River Associates (CRA) - Competition Practice

Georg Strasser

European Central Bank (ECB) - Directorate General Research

Multiple version iconThere are 2 versions of this paper

Date Written: May 12, 2017

Abstract

We study cross-country price differences in the European market for new passenger cars based on detailed pricing and technical data. Car prices in Europe converged until the year 2003, but not thereafter. Within the EU 15 countries the price range of the median model in 2004 was close to 20 percent. We document a source of international price differentiation, which is not related to distribution and border costs, but instead systematically linked to product features. Price dispersion increases with the market segment and varies significantly across models. Marketing appears to position identical goods differently in each country, for example by feature bundles tailored to local consumer preferences. Both the convergence before the actual reduction of barriers to arbitrage and the systematic international price differentiation by product feature point to active pricing-to-market strategies that treat countries as marketing regions.

Keywords: arbitrage, European car market, international price dispersion, law of one price, market segmentation

JEL Classification: F15, F31, L11, L62, D22

Suggested Citation

Dvir, Eyal and Strasser, Georg H., Does Marketing Widen Borders? Cross-Country Price Dispersion in the European Car Market (May 12, 2017). ECB Working Paper No. 2059. Available at SSRN: https://ssrn.com/abstract=2968990

Eyal Dvir (Contact Author)

Charles River Associates (CRA) - Competition Practice ( email )

200 Clarendon St
Boston, MA 02116
United States
617-425-3699 (Phone)

Georg H. Strasser

European Central Bank (ECB) - Directorate General Research ( email )

Sonnemannstra├če 20
Frankfurt am Main, 60314
Germany
+496913441416 (Phone)

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