International price discrimination in the European car market : An econometric model of oligopoly behavior with product differentiation

Why are car prices so different across European countries? I construct and estimate an oligopoly model to analyze whether international price discrimination can explain the puzzle. Three sources of international price discrimination are considered: price elasticities, import quota constraints, and collusion. The data reveal that international price discrimination accounts for an important part of the observed price differences. Low price elasticities (or domestic market power) are present in France, Germany, the United Kingdom, and especially Italy. Binding import quota constraints on Japanese cars exist in France and Italy. The possibility of collusion cannot be rejected in Germany and the United Kingdom.

[1]  Andrew Caplin,et al.  Aggregation and Imperfect Competition: On the Existence of Equilibrium , 1991 .

[2]  Steven T. Berry,et al.  Automobile Prices in Market Equilibrium , 1995 .

[3]  Y. Mertens.  Modelling Price Behaviour in the European Car Market: 1970-1985 , 1990 .

[4]  J. Melo,et al.  Price, quality and welfare effects of European VERs on Japanese autos , 1988 .

[5]  T. Bresnahan,et al.  Dealer and manufacturer margins , 1985 .

[6]  J. Gual.  An econometric analysis of price differentials in the EEC automobile market , 1993 .

[7]  Christopher A. Sims,et al.  Advances in Econometrics , 1996 .

[8]  S. Rosen.  Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition , 1974, Journal of Political Economy.

[9]  Victor Ginsburgh,et al.  Product Differentiation and Price Discrimination in the European Community: The Case of Automobiles , 1985 .

[10]  T. Bresnahan.  Departures from marginal-cost pricing in the American automobile industry: Estimates for 1977–1978 , 1981 .

[11]  A. Kirman,et al.  Price Leadership And Discrimination In The European Car Market , 1990 .

[12]  Robert C. Feenstra,et al.  Estimating markups and market conduct with multidimensional product attributes , 1995 .

[13]  Mark D. Uncles,et al.  Discrete Choice Analysis: Theory and Application to Travel Demand , 1987 .

[14]  T. Bresnahan.  Competition and Collusion in the American Automobile Industry: The 1955 Price War , 1987 .

[15]  Daniel McFadden,et al.  Modelling the Choice of Residential Location , 1977 .

[16]  Andrew Caplin,et al.  Aggregation and Imperfect Competition , 1991 .

[17]  Simon P. Anderson,et al.  Multiproduct Firms: A Nested Logit Approach , 1992 .

[18]  M. Knetter.  International Comparisons of Pricing-to-Market Behavior , 1992 .

[19]  P. Goldberg.  Product Differentiation and Oligopoly in International Markets: The Case of the U.S. Automobile Industry , 1995 .

[20]  F. Verboven.  The nested logit model and representative consumer theory , 1996 .

[21]  Harry Flam,et al.  Product Markets and 1992: Full Integration, Large Gains? , 1992 .

[22]  Michael Sattinger,et al.  Value of an Additional Firm in Monopolistic Competition , 1984 .

[23]  J. Laffont,et al.  Econometric Analysisof Collusive Behaviorin a Soft‐Drink Market , 1992 .

[24]  K. Krishna.  Trade Restrictions as Facilitating Practices , 1989 .

[25]  A. Karlqvist,et al.  Spatial interaction theory and planning models , 1978 .