We use a unique dataset on television prices across European countries and regions to investigate the sources of differences in price levels. Our findings are as follows: (i) Quality is a crucial determinant of price differences. Even in an integrated economic zone as Europe, rich economies tend to consume higher quality goods. This effect accounts for the lion’s share of international price dispersion. (ii) Sizable international price differentials subsist even for the same television sets. The average bilateral price difference is as high as 80 euros, or 8% of the average TV price in our sample. (iii) EMU countries display lower price dispersion than non-EMU countries. (iv) absolute price differentials and relative price volatility are positively correlated with exchange rate volatility, but not with conventional measures of transport costs. (v) Importantly we show brand premia are sizable. They differ markedly across borders, in a way that does not correlate with transport costs, nor exchange rate movements. Taken together, the evidence is consistent firms exploiting market power through brand values to price discriminate across borders.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
15418.
Length: Date of creation: Oct 2009 Date of revision: Handle: RePEc:nbr:nberwo:15418
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Find related papers by JEL classification: F0 - International Economics - - General F1 - International Economics - - Trade F15 - International Economics - - Trade - - - Economic Integration F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
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