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Cross-country price and inflation dispersion: Retail network or national border

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  • Messner, Teresa

    (Oesterreichische Nationalbank)

  • Rumler, Fabio

    (Oesterreichische Nationalbank)

  • Strasser, Georg

    (European Central Bank)

Abstract

(Why) do prices and inflation rates differ within the euro area? We study the relevance of a national border for grocery prices in the otherwise homogenous and highly integrated border region of Austria and Germany. Using transaction data on prices and quantities from a large household panel, we compare the prices of identical products within a narrow band along the border. We find large assortment and price differences between these two regions. Even within multinational retail chains the prices of identical products on the two sides of the border differ on average by about 21%. These price differences are not very persistent over time indicating little arbitrage gain from undifferentiated cross-border shopping. Ensuing product-level inflation rates differ for only half of the chains between the two countries. The results highlight the importance of the history-dependent evolution of distribution networks and of the structure of the sales organisation as a driver of price and inflation heterogeneity.

Suggested Citation

  • Messner, Teresa & Rumler, Fabio & Strasser, Georg, 2022. "Cross-country price and inflation dispersion: Retail network or national border," Single Market Economics Papers WP2022/11, Directorate-General for Internal Market, Industry, Entrepreneurship and SMEs (European Commission), Chief Economist Team.
    • Handle: RePEc:bda:wpsmep:wp2022/11
    DOI: 10.2873/80128
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    More about this item

    Keywords

    Price discrimination; goods market integration; border effect; cross-border arbitrage; market power;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • F15 - International Economics - - Trade - - - Economic Integration
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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