Title: The evolution of price discrimination in the European car market
Authors: Goldberg, PK
Verboven, Frank
Issue Date: 1998
Publisher: National Bureau of Economic Research
Series Title: National Bureau of Economic Research Working Paper 6818 pages:1-46
Abstract: Car prices in Europe are characterized by large and persistent differences across countries. The purpose of this paper is to document and explain this price dispersion. Using a panel data set extending from 1980 to 1993, the authors first demonstrate two main facts concerning car prices in Europe: (1) The existence of significant differences in quality adjusted prices across countries; (2) substantial year-to-year volatility that is to a large extent accounted for by exchange rate fluctuation and the incomplete response of local currency prices to these fluctuations. These facts are analyzed within the framework of a multi-product oligopoly model with product differentiation. The model identifies three potential sources for the international price differences: price elasticities generating differences in markups, costs, and import quota constraints. The authors find that the primary reason for the higher prices in Italy is the existence of a strong bias for domestic brands that generates high markups for the domestic firm. In the UK higher prices are mainly attributed to better equipped cars and/or differences in the dealer car practices. The import quota constraints are found to have a significant impact on Japanese car prices
Publication status: published
KU Leuven publication type: IR
Appears in Collections:Research Center of Econometrics, Leuven

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