DP1181 | Why do Pre-tax Car Prices Differ so Much Across European Countries?

Publication Date

31/05/1995

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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%.