The myth of price convergence under economic integration: A proposed explanation for the difference in food prices across European countries

Abstract

Conventional globalization theory states that regional economic integration will precede price standardization across participating countries due to the increased buying power of large retail groups and parallel imports. The resulting price corridor should merely reflect differences in logistic costs and short-term, local competitive actions. Yet, this study uses panel data from 25 European countries to examine how hefty food and beverage price differentials between regions remained constant over the last decade. Income, store productivity, and market concentration all contribute to the explanation for regional price differences. These findings suggest that, contrary to straight-line globalization theory, large European retailers’ decisions can influence price convergence and maintain important price dispersion between economically integrated countries. We provide recommendations to enhance market integration.