Lutz, Matthias (2000) Pricing in segmented markets, arbitrage and the law of one price: evidence from the European car market. Working Paper. University of Warwick. Centre for the Study of Globalisation and Regionalisation, Coventry.

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Abstract

The paper examines automobile price differences in the Single Market for the 1993-98 period. The absolute law of one price is strongly rejected, but there is some convergence to its relative version. Two sets of explanations are considered: (i) price-setting in segmented markets and (ii) arbitrage barriers. The role of price-setting variables is seriously overestimated when arbitrage factors are not controlled for. Evidence for Belgium and Luxembourg suggests that the single currency will lower price differences significantly. Arbitrage trade is also likely to become more effective if the block exemption is not extended beyond 2002.

Item Type:	Working or Discussion Paper (Working Paper)
Subjects:	H Social Sciences > HD Industries. Land use. Labor
Divisions:	Faculty of Social Sciences > Centre for the Study of Globalisation and Regionalisation
Library of Congress Subject Headings (LCSH):	Automobile industry and trade -- Europe, Arbitrage -- Europe, Purchasing power parity -- Europe, Market segmentation -- Europe
Series Name:	Working papers (University of Warwick. Centre for the Study of Globalisation and Regionalisation)
Publisher:	University of Warwick. Centre for the Study of Globalisation and Regionalisation
Place of Publication:	Coventry
Date:	May 2000
Number:	No.53/
Number of Pages:	35
Status:	Not Peer Reviewed
Access rights to Published version:	Open Access
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URI:	http://wrap.warwick.ac.uk/id/eprint/2072

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