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The Market for Tractors in the EU: Price Differences and Convergence

  • Jörgensen, Christian
  • Persson, Morten
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    This study evaluates the degree of segmentation of the market for agricultural machinery and equipment in the EU. We focus on agricultural tractors, the most common and biggest investment in machinery and equipment in the agricultural sector. By using country price data for individual tractor models, we test the law of one price, i.e. the existence of a common price for tractors across EU member states. We find that significant price differences exist, yet unlike most other studies we find that large price deviations are penalised within a short time. The study also shows that transport costs are an important source of price differences, as domestic production leads to lower prices on the domestic market and as price convergence is negatively correlated with distance. Finally, price differences should not solely be understood from a geographical perspective, as evidence supports the idea that farmers’ buying power is significant in explaining price differences within countries.

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    File URL: http://www.factormarkets.eu/system/files/FM%20WP35%20EU%20Market%20for%20Tractors.pdf
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    Paper provided by Centre for European Policy Studies in its series Factor Markets Working Papers with number 145.

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    Length: 22 pages
    Date of creation: Jan 2013
    Date of revision:
    Handle: RePEc:eps:fmwppr:145
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    1. Nikolaos Georgantzís & Gerardo Sabater-Grande, 2002. "Market Transparency and Collusion: On the UK Agricultural Tractor Registration Exchange," European Journal of Law and Economics, Springer, vol. 14(2), pages 129-150, September.
    2. Pinelopi Koujianou Goldberg & Frank Verboven, 1998. "The Evolution of Price Dispersion in the European Car Market," NBER Working Papers 6818, National Bureau of Economic Research, Inc.
    3. Rahul Giri, 2009. "Local Costs of Distribution, International Trade Costs and Micro Evidence on the Law of One Price," 2009 Meeting Papers 652, Society for Economic Dynamics.
    4. David C. Parsley & Shang-Jin Wei, 1996. "Convergence to the Law of One Price Without Trade Barriers or Currency Fluctuations," NBER Working Papers 5654, National Bureau of Economic Research, Inc.
    5. Goldberg, Pinelopi & Verboven, Frank, 2001. "Market Integration and Convergence to the Law of One Price: Evidence from the European Car Market," CEPR Discussion Papers 2926, C.E.P.R. Discussion Papers.
    6. Fackler, Paul L. & Goodwin, Barry K., 2001. "Spatial price analysis," Handbook of Agricultural Economics, in: B. L. Gardner & G. C. Rausser (ed.), Handbook of Agricultural Economics, edition 1, volume 1, chapter 17, pages 971-1024 Elsevier.
    7. Paul W. Dobson & Michael Waterson & Stephen W. Davies, 2003. "The Patterns and Implications of Increasing Concentration in European Food Retailing," Journal of Agricultural Economics, Wiley Blackwell, vol. 54(1), pages 111-125.
    8. Anand Mehta & Andrew C Gross, 2007. "The Global Market for Agricultural Machinery and Equipment," Business Economics, Palgrave Macmillan, vol. 42(4), pages 66-73, October.
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