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Price discrimination between EU regions

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  • Wolter H.J. Hassink
  • Ronald Schettkat

Abstract

Prices of identical products differ tremendously among EU countries. Prices of IKEA products range by more than 40% on average, which is far more than the 12% price difference the EU Commission regards as compatible with competitive markets. These price differences can only partly be attributed to differences in non‐tradable cost components between countries (such as wage costs or value‐added taxes). The economic explanation for this phenomenon is that consumers are hardly aware of differences in prices across countries and that transportation costs are too high to make arbitrage profitable. Market intransparency for the consumer allows firms to discriminate between regional markets. However, knowledge of market‐specific demand conditions is very limited leaving firms to find the profit maximising price in a trial‐and‐error process.

Suggested Citation

  • Wolter H.J. Hassink & Ronald Schettkat, 2003. "Price discrimination between EU regions," Tijdschrift voor Economische en Sociale Geografie, Royal Dutch Geographical Society KNAG, vol. 94(2), pages 258-264, May.
    • Handle: RePEc:bla:tvecsg:v:94:y:2003:i:2:p:258-264
    DOI: 10.1111/1467-9663.00253
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    References listed on IDEAS

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    1. Hassink, Wolter & Schettkat, Ronald, 2001. "On Price-Setting for Identical Products in Markets without Formal Trade Barriers," IZA Discussion Papers 315, Institute of Labor Economics (IZA).
    2. Haskel, Jonathan & Wolf, Holger, 2001. " The Law of One Price--A Case Study," Scandinavian Journal of Economics, Wiley Blackwell, vol. 103(4), pages 545-558, December.
    3. Jonathan Haskel & Holger Wolf, 2001. "The Law of One Price—A Case Study," Scandinavian Journal of Economics, Wiley Blackwell, vol. 103(4), pages 545-558, December.
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    Cited by:

    1. 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.
    2. Sophie-Charlotte Meyer & Ronald Schettkat, 2013. "Price Convergence in Euroland. Evidence from micro data without noise," Schumpeter Discussion Papers sdp13005, Universitätsbibliothek Wuppertal, University Library.

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