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Price Convergence in the European Union: Within Firms or Composition of Firms?

Author

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  • Isabelle Méjean

    (X-DEP-ECO - Département d'Économie de l'École Polytechnique - X - École polytechnique)

  • Cyrille Schwellnus

    (OCDE - Organisation de Coopération et de Développement Economiques = Organisation for Economic Co-operation and Development)

Abstract

In this paper we use data on French export prices at the disaggregated firm and product level to evaluate the effect of economic integration on price convergence. We use the European integration ‘experiment' and firm-level data on export prices to distinguish between two possible margins of adjustment: At the intensive margin economic integration induces different pricing strategies within the firm, whereas at the extensive margin it affects the composition of firms with different pricing strategies. In our sample price convergence is 40 percent faster in the European Union than in an appropriately defined control group. 30 percent of this effect can be attributed to the fact that a higher share of firms with a low propensity to price discriminate serve European markets.

Suggested Citation

  • Isabelle Méjean & Cyrille Schwellnus, 2009. "Price Convergence in the European Union: Within Firms or Composition of Firms?," Working Papers hal-00354190, HAL.
    • Handle: RePEc:hal:wpaper:hal-00354190
    Note: View the original document on HAL open archive server: https://hal.science/hal-00354190
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    5. Margaret K. Kyle, 2019. "The Single Market in Pharmaceuticals," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 55(1), pages 111-135, August.
    6. Swati Dhingra & Hanwei Huang & Gianmarco Ottaviano & João Paulo Pessoa & Thomas Sampson & John Van Reenen, 2017. "The costs and benefits of leaving the EU: trade effects," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 32(92), pages 651-705.
    7. Ogrokhina, Olena, 2019. "Persistence of prices in the Eurozone capital cities: Evidence from the Economist Intelligence Unit City Data," Economic Modelling, Elsevier, vol. 76(C), pages 330-338.
    8. Philippe Andrade, 2010. "Competition and Pass-through on international markets: Firm-level evidence from VAT shocks," 2010 Meeting Papers 820, Society for Economic Dynamics.
    9. Martin, Julien, 2012. "Markups, quality, and transport costs," European Economic Review, Elsevier, vol. 56(4), pages 777-791.
    10. Swati Dhingra & Stephen Machin & Henry Overman, 2017. "Local Economic Effects of Brexit," National Institute Economic Review, National Institute of Economic and Social Research, vol. 242(1), pages 24-36, November.
    11. Dvir, Eyal & Strasser, Georg, 2018. "Does marketing widen borders? Cross-country price dispersion in the European car market," Journal of International Economics, Elsevier, vol. 112(C), pages 134-149.
    12. Keith Head & Thierry Mayer, 2021. "The United States of Europe: A Gravity Model Evaluation of the Four Freedoms," Journal of Economic Perspectives, American Economic Association, vol. 35(2), pages 23-48, Spring.
    13. Duch-Brown, Néstor & Grzybowski, Lukasz & Romahn, André & Verboven, Frank, 2021. "Are online markets more integrated than traditional markets? Evidence from consumer electronics," Journal of International Economics, Elsevier, vol. 131(C).
    14. Julien Martin & Isabelle Méjean, 2010. "Euro et dispersion des prix à l’exportation," Économie et Statistique, Programme National Persée, vol. 435(1), pages 49-64.
    15. Thomas Sampson, 2017. "Brexit: The Economics of International Disintegration," Journal of Economic Perspectives, American Economic Association, vol. 31(4), pages 163-184, Fall.
    16. Bernard, Andrew & Vandenbussche, Hylke & van Beveren, Ilke, 2012. "Concording EU Trade and Production Data over Time," CEPR Discussion Papers 9254, C.E.P.R. Discussion Papers.
    17. Ken Coutts & Graham Gudgin & Jordan Buchanan, 2018. "How the Economics Profession Got It Wrong on Brexit," Working Papers wp493, Centre for Business Research, University of Cambridge.
    18. Juan de Lucio & Raúl Mínguez & Asier Minondo & Francisco Requena, 2018. "The variation of export prices across and within firms," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 154(2), pages 327-346, May.
    19. Ottaviano, Gianmarco & Pessoa, João Paulo & Sampson, Thomas & Van Reenen, John, 2014. "The costs and benefits of leaving the EU," CFS Working Paper Series 472, Center for Financial Studies (CFS).
    20. Harun UCAK, 2012. "Producer price disparities in the EU agriculture: divergence or convergence?," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 58(8), pages 367-371.
    21. Dan Ciuriak, 2016. "India’s Possible Response to the Challenge of the Mega-regionals," Foreign Trade Review, , vol. 51(2), pages 180-193, May.
    22. John Van Reenen, 2016. "Brexit's Long-Run Effects on the U.K. Economy," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 47(2 (Fall)), pages 367-383.
    23. Martin, Julien & Mejean, Isabelle, 2013. "Price dispersion and the euro: Micro heterogeneity and macro implications," International Review of Economics & Finance, Elsevier, vol. 26(C), pages 70-86.
    24. Leon Podkaminer, 2013. "Persistent gaps between purchasing power parities and exchange rates under the law of one price: a puzzle (partly) explained?," Bank i Kredyt, Narodowy Bank Polski, vol. 44(4), pages 333-352.
    25. Romero, Jaime & Cruz-Roche, Ignacio & Charron, Jean-Philippe, 2020. "The myth of price convergence under economic integration: A proposed explanation for the difference in food prices across European countries," European Management Journal, Elsevier, vol. 38(2), pages 267-276.

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    More about this item

    Keywords

    Price convergence; Firm heterogeneity; European integration;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General

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