An econometric analysis of price differentials in the EEC automobile market

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Abstract
The paper investigates the sources of the observed price disparities in the EEC automobile market. On the basis of an oligopoly model with product differentiation, this paper tests, and fails to reject, the hypothesis that automobile firms segregate national markets in the EEC. It is found that value added tax differentials and the existence of different import restraints (quotas and VERs) are important contributing factors to price disparities. On the contrary, transportation cost differentials are not a significant explanatory variable. Finally, the preference for domestic products or ‘national’ brands is found as an important contributing factor in Britain and Itlay.

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