Économie et Statistique n° 435-436 - Internationalization of French Business Firms

Economie et Statistique
Paru le : 03/03/2011
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The Euro and Export-Price Dispersion

Julien Martin et Isabelle Méjean

By strengthening arbitrage behaviour, monetary union is supposed to reduce price dispersion inside the integrated area. The reason is that sharing a single currency facilitates price comparisons and reduces transaction costs such as conversion costs. Monetary integration should therefore lead to price convergence. We test this hypothesis by using the natural experiment of the European Monetary Union (EMU). We base our empirical study on panel data for French export prices and a differences-in-differences estimation strategy. The explained variable is the dispersion of prices set by a given firm in its markets, which we interpret as a price discrimination measure. The results show that the introduction of the single currency has significantly reduced price dispersion in the euro zone relative to the rest of the OECD but also to the other European Union Member States, which did not join the EMU. This effect is, however, fairly modest. Before the advent of the single currency, prices in the future euro zone were 15% higher than in the rest of the EU. Since 1999, the gap has narrowed to 8.1%. Price strategies differ according to firm size. In particular, we show that the introduction of the single currency has had a relatively stronger impact on price discrimination by the largest firms. This is probably due to the fact that large firms are also the ones whose prices were most dispersed before the switch to the single currency.

Economie et Statistique
No 435-436
Paru le : 03/03/2011