Convergence in car prices among European countries

Abstract

This article contributes to the literature on price convergence in Europe by investigating the existence of stochastic and deterministic convergence of car prices in the EU15 countries. We apply recently developed econometric techniques that allow for multiple structural breaks to an up-to-date dataset. We find considerable evidence of both types of convergence in our sample of countries and car models, therefore suggesting a tendency for relative prices to equalize over time. In addition, we find evidence regarding the importance in this convergence process of both legislative changes taking place in the years 1996 and 2002, and the implementation of Economic and Monetary Union (EMU).

Keywords:

• market integration
• automobiles
• European
• convergence
• panel stationarity

JEL Classification:

• C23
• F15
• F30

Acknowledgements

The authors thank the editor and an anonymous referee for useful comments and suggestions that led to a substantial improvement of this article. We also gratefully acknowledge financial support from the Spanish Ministry of Science and Innovation (projects ECO2008-05565 and ECO2009-08181). The project ECO2009-08181 has been part-funded by the European Regional Development Fund. Salvador Gil-Pareja also thanks financial support from the Generalitat Valenciana (GVPROMETEO2009-098). A previous version of this article was published as FUNCAS Working Paper No. 517/2010.

Notes

¹ Price convergence in the EU has been widely tested. Some recent examples are, among others, Sosvilla-Rivero and Gil-Pareja (2004), Kasman et al. (2005), Roos (2006), Robinson (2007) and Dreher and Krieger (2010).

² The external studies are provided at http://ec.europa.eu/competition/sectors/motor_vehicles/overview_en.htm.

³ See Gil-Pareja and Sosvilla-Rivero (2008) for a review of the literature on price convergence in the European car market.