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date: 22 November 2019

Abstract and Keywords

A few years back many predicted that new information technology and the common currency in Europe would exert a powerful equalizing pressure on prices of the same good in different locations. This chapter evaluates these predictions with a focus on empirical evaluations. We first survey the literature that links transparency to price dispersion (more transparency is associated with lower dispersion) and to price levels (there is a general presumption that prices fall as they become more transparent but by making collusion easier the effects can be the opposite in some markets). We also survey evidence that many markets are segmented along national borders and present an in-depth analysis of the mechanisms that link transparency and market segmentation. We conclude that greater transparency has important market integrating effects—but only if other barriers that separate markets are low and sellers are not able to endogenously create barriers. Overall the market integrating effects of greater transparency associated with new technology and a common currency in Europe have been minor so far.

Keywords: arbitrage, European Monetary Union, law of one price, market integration, market segmentation, transparency

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