91

This paper analyses movements in automobile-price differentials between European Union countries from 1993 to 1999. Microeconomic data for selling prices of the principal models are used to construct price series for countries using an econometric hedonic-price model. It is shown that, since the introduction of the Single Market, there has been no convergence (sigma convergence, i.e., reduction in dispersion) of the pre-tax prices applied in the various countries of the Union. However, there is a convergence mechanism operating (beta convergence), but this has not been translated into a reduction in price differentials, mainly because of currency fluctuations. Taxation varies widely from one country to another and has a considerable impact on the dispersion of pre-tax prices. The disappearance of currency fluctuations between countries belonging to the euro zone should make it possible for arbitrage mechanisms to play their full role and lead to a genuine reduction in price differentials.