Direct and indirect price discrimination in the automotive industries of the European Union

Abstract

Using a panel dataset comprising of 51 models across 21 European Union member states, I estimate the effects of country-specific factors that make price discrimination profitable. Taking advantage of cross-country heterogeneities, I find that a domestic brand bias, per capita income, and income inequalities lead to significantly different prices across borders. The role of income inequalities is supported by a theoretical model of indirect price discrimination at the national level. We therefore conclude that not only direct international price discrimination, but also indirect national price discrimination is responsible for the observed price differentials across international borders, which are not likely to fully converge as long as the exclusive dealership system is in place, and significant demand-side differences still remain.