Market Integration and Convergence to the Law of One Price: Evidence from the European Car Market
35 Pages Posted: 29 Jul 2001 Last revised: 18 Dec 2022
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Market Integration and Convergence to the Law of One Price: Evidence from the European Car Market
Market Integration and Convergence to the Law of One Price: Evidence from the European Car Market
Date Written: July 2001
Abstract
This paper exploits the unique experiment of European market integration to investigate the relationship between integration and price convergence in international markets. Using a panel data set of car prices we examine how the process of integration has affected cross-country price dispersion in Europe. We find surprisingly strong evidence of convergence towards both the absolute and the relative versions of Purchasing Power Parity. Our analysis illuminates the main sources of segmentation in international markets and suggests the type of institutional changes that can successfully reduce it.
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