Testing the Market Integration Process in the European Car Sector: Evidence from Pricing-to-market Behaviour

Abstract

In this study, we investigate the process of the European car market integration by analysing the evolution of cross-country differences in the degree of pricing-to-market behaviour of United Kingdom exporters. We estimate these country differences by exploiting statistical information for pre-tax retail prices and for export unit values. Conclusions from both independent data sets are, in general, quite consistent. Results support the claim that, in the period before the Block Exemption Regulation (1400/2002) came fully into force, international price discrimination was an important source of car price dispersion within the euro area. For a more recent period, we found that estimated deviations in pricing-to-market behaviour across destinations have become lower. This convergence suggests that car market integration was progressively improved at the end of the last decade.