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Eyal Dvir

12 May 2017
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.
JEL Code
F15 : International Economics→Trade→Economic Integration
F31 : International Economics→International Finance→Foreign Exchange
L11 : Industrial Organization→Market Structure, Firm Strategy, and Market Performance→Production, Pricing, and Market Structure, Size Distribution of Firms
L62 : Industrial Organization→Industry Studies: Manufacturing→Automobiles, Other Transportation Equipment
D22 : Microeconomics→Production and Organizations→Firm Behavior: Empirical Analysis