Does marketing widen borders? Cross-country price dispersion in the European car market

Abstract

We study cross-country price differences in the European market for new passenger cars based on detailed pricing and technical data. Car prices in Europe converged until the year 2003, but not thereafter. Even then the price range of the median model across EU15 countries was close to 20%. This cross-country price differentiation is systematically linked to common product features, varies significantly across models and increases systematically with the market segment. Identical cars are positioned individually by country, for example via tailored feature bundles. Both the convergence of prices in anticipation of a future reduction of barriers to arbitrage and the systematic price differentials point to active pricing-to-market strategies that treat countries as marketing regions.