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Why do Pre-tax Car Prices Differ so Much Across European Countries?

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  • Flam, Harry
  • Nordström, Håkan

Abstract

The European car market is segmented by regulatory measures that support price discrimination by manufacturers and make consumer arbitrage difficult and costly. In a sample covering 43 models making up 80% of car sales in 11 countries in 1989-92, we find that the average standard deviation of pre-tax prices across markets is 14%. The difference between the maximum and minimum price is typically about 50% of the average price. The price discrimination seems to be driven largely by taxes, tariffs and import quotas. For example, a quota raises the pre-tax price of the average Japanese car by 12% and of the average competing European car by 7%.

Suggested Citation

  • Flam, Harry & Nordström, Håkan, 1995. "Why do Pre-tax Car Prices Differ so Much Across European Countries?," CEPR Discussion Papers 1181, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:1181
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    Citations

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    Cited by:

    1. Joseph Francois & Ian Wooton, 2010. "Market Structure and Market Access," The World Economy, Wiley Blackwell, vol. 33(7), pages 873-893, July.
    2. Adolfson, Malin, 1999. "Swedish Export Price Determination: Pricing to Market Shares?," SSE/EFI Working Paper Series in Economics and Finance 306, Stockholm School of Economics.
    3. Joseph Francois & Ian Wooton, 2004. "Market Structure in Services and Market Access in Goods," Tinbergen Institute Discussion Papers 04-050/2, Tinbergen Institute.
    4. Matthias Lutz, 2004. "Pricing in Segmented Markets, Arbitrage Barriers, and the Law of One Price: Evidence from the European Car Market," Review of International Economics, Wiley Blackwell, vol. 12(3), pages 456-475, August.
    5. Einar Bowitz & Taran Fæhn & Leo Grünfeld & Knut Moum, 1997. "Can a Wealthy Economy Gain from an EU Membership? Adjustment Costs and Long Term Welfare Effects of Full Integration—The Norwegian Case," Open Economies Review, Springer, vol. 8(3), pages 211-231, July.
    6. Friberg, Richard, 1997. "Should the core fear the outs? Price setting practices and international monetary transmission," SSE/EFI Working Paper Series in Economics and Finance 203, Stockholm School of Economics.

    More about this item

    Keywords

    Market Segmentation; Price Discrimination; Voluntary Export Restraint;

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F15 - International Economics - - Trade - - - Economic Integration

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