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The Euro and Regional Price Differences of Individual Products in an Integrated Cross-Border Area

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  • THOMAS Y. MATHA

Abstract

Using individual supermarket prices, this article shows that, even for a narrowly defined geographical and highly integrated cross-border area, absolute deviations from the law of one price (LOP) rise, as distance increases and borders are crossed. Being inside the former Belgian-Luxembourg monetary association has the opposite effect. The latter result suggests that the euro will increase European integration and will help to reduce regional and cross-border price differences in the long term. Furthermore, larger differences in packaging sizes result in larger price deviations. The opposite is the case for prices observed within the same retail group. Copyright 2006 Blackwell Publishing Ltd.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Journal of Common Market Studies.

Volume (Year): 44 (2006)
Issue (Month): (09)
Pages: 563-580

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Handle: RePEc:bla:jcmkts:v:44:y:2006:i::p:563-580

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Cited by:
  1. Friberg, Richard & Matha, Thomas Y., 2004. "Does a common currency lead to (more) price equalization? The role of psychological pricing points," Economics Letters, Elsevier, vol. 84(2), pages 281-287, August.
  2. Thomas Y. Mathä, 2008. "Regional mc parity: do common pricing points reduce deviations from the law of one price?," BCL working papers 34, Central Bank of Luxembourg.
  3. Fischer, Christoph, 2012. "Price convergence in the EMU? Evidence from micro data," European Economic Review, Elsevier, vol. 56(4), pages 757-776.
  4. Jan-Egbert Sturm & Ulrich Fritsche & Michael Graff & Michael Lamla & Sarah Lein & Volker Nitsch & David Liechti & Daniel Triet, 2009. "The euro and prices: changeover-related inflation and price convergence in the euro area," European Economy - Economic Papers 381, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.

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