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Process of convergence in the EU Joanna
Wolszczak-Derlacz, PhD
Lecture Price convergence
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The Law Of One Price
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The price convergence as the measure of the
integration
Market is a place where the same product have
the same prices Marshall
Single market
Single price
price convergence meaning lowering the price
dispersion is the most syntetic measure of
integration Zielinska-Glebocka
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The arguments against the LOP and PPP
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The factors that speed the spatial price
convergence
1. market integration 2. e-commerce
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E-commerce
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Share of individuals having ordered/bought goods
or services for private use over Internet in the
last three months (Eurostat,2004)
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The influence of VAT on price dispersion
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The EMU and the price convergence
-reduction of transaction costs -
elimination of exchange rate risk - price
transparency
trade
EMU
Price convergence
competition
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The potential benefits of existing a single price
Hufbauer G.C, Wada E., Warren T., (2002)
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Hufbauer G.C, Wada E., Warren T., (2002)
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Review of previous studies concerning price
convergence

• The analyse of 30 studies conducted in 90ties
• (Wolf 1994, Rogoff 1995,Engel and Rogers
  1996, Verboven 2000, Crucini et al. 2001, Parsley
  and Wei 2001, Friberg 2001, Isgut 2002,
  Sosvilla-Rivero and Gil-Pareja 2002, Lutz 2003,
  Imbs 2004, Allington at al. 2004)
• LOP does/does not hold
• price dispersion inter gt intra national
• price dispersion in Europe gt USA
• half lives from 9 to 115 months
• euro yes/no

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The Comparative Price Level
CPL PPPs/Euro
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The overall view on price disparity in the
EUSigma convergence
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Beta convergence
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The empirical studies based on exact prices

• Data comes from Economist Intelligence Unit
• - prices of 174 products from 123 cities, 79
  countries
• - final sample 149 products, 15 capital
  cities, 1990-2003
• 105 relative prices

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Sigma convergence
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1,2
1
0,8
0,6
0,4
0,2
0
1
9
17
25
33
41
49
57
65
73
81
89
97
105
113
121
129
137
145
-0,2
-0,4
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The gravity model
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