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Explaining the Endurance of Price Level Differences in the Euro Area

Author

Listed:
  • Huw Dixon

    (Cardiff Business School)

  • Theodora Kosma

    (Bank of Greece)

  • Pavlos Petroulas

    (Bank of Greece)

Abstract

In this paper we anaIyse price level differences in the euro area focusing on the impact of market structure and exploring how consumer behaviour can influence firms’ pricing. We consider two elements of market structure: producer market competition structure and the less explored structure of retail market competition. Regarding consumer behaviour we focus primarily on consumer habits. To this effect we utilise an extensive data set on retail prices and quantities for 41 product categories of fast-moving consumer goods across 58 regions in 10 euro area countries. Our results indicate that observed price differences reflect effects from diverse sources. The competition structure of the goods’ producers is found to be an important determinant of price differences. However, we also find that retail market structure and consumer habits also matter, explaining a significant and economically meaningful share of observed price differences. This points to possible new and important determinants of price differences across countries that go beyond the traditional goods market structure.

Suggested Citation

  • Huw Dixon & Theodora Kosma & Pavlos Petroulas, 2025. "Explaining the Endurance of Price Level Differences in the Euro Area," Open Economies Review, Springer, vol. 36(4), pages 1047-1080, September.
    • Handle: RePEc:kap:openec:v:36:y:2025:i:4:d:10.1007_s11079-024-09794-1
    DOI: 10.1007/s11079-024-09794-1
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    Keywords

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    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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