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Title: Why do Pre-tax Car Prices Differ so Much Across European Countries?

Author(s): Harry Flam and Håkan Nordström

Publication Date: May 1995

Keyword(s): Market Segmentation, Price Discrimination and Voluntary Export Restraint

Programme Area(s): International Trade and Regional Economics

Abstract: The European car market is segmented by regulatory measures that support price discrimination by manufacturers and make consumer arbitrage difficult and costly. In a sample covering 43 models making up 80% of car sales in 11 countries in 1989-92, we find that the average standard deviation of pre-tax prices across markets is 14%. The difference between the maximum and minimum price is typically about 50% of the average price. The price discrimination seems to be driven largely by taxes, tariffs and import quotas. For example, a quota raises the pre-tax price of the average Japanese car by 12% and of the average competing European car by 7%.

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Bibliographic Reference

Flam, H and Nordström, H. 1995. 'Why do Pre-tax Car Prices Differ so Much Across European Countries?'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=1181