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

See all articles by Pinelopi Goldberg

Pinelopi Goldberg

Yale University - Department of Economics; National Bureau of Economic Research (NBER); Yale University - Cowles Foundation; Peterson Institute for International Economics; Bureau for Research and Economic Analysis of Development (BREAD); Centre for Economic Policy Research (CEPR)

Frank Verboven

Catholic University of Leuven (KUL) - Department of Applied Economics; Centre for Economic Policy Research (CEPR)

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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.

Suggested Citation

Goldberg, Pinelopi (Penny) and Verboven, Frank, Market Integration and Convergence to the Law of One Price: Evidence from the European Car Market (July 2001). NBER Working Paper No. w8402, Available at SSRN: https://ssrn.com/abstract=278035

Pinelopi (Penny) Goldberg (Contact Author)

Yale University - Department of Economics ( email )

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Peterson Institute for International Economics ( email )

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Bureau for Research and Economic Analysis of Development (BREAD) ( email )

Duke University
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Centre for Economic Policy Research (CEPR) ( email )

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Frank Verboven

Catholic University of Leuven (KUL) - Department of Applied Economics ( email )

Leuven, B-3000
Belgium
+32 1 632 6944 (Phone)
+32 1 632 6732 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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