The euro and regional price differences of individual products in an integrated cross-border area

Abstract:

Using individual supermarket prices, this article shows that, even for a narrowly defined geographical and highly integrated cross-border area, absolute deviations from the law of one price (LOP) rise, as distance increases and borders are crossed. Being inside the former Belgian-Luxembourg monetary association has the opposite effect. The latter result suggests that the euro will increase European integration and will help to reduce regional and cross-border price differences in the long term. Furthermore, larger differences in packaging sizes result in larger price deviations. The opposite is the case for prices observed within the same retail group.