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No 27 (July 2001/Juillet 2001/Juli 2001)
Price comparisons are good indicators of economic integration and market performance. In the context of the Single Market Scoreboard (see page 6), the Internal Market Strategy (see SMN 26) and the monitoring of product market performance, the European Commission has conducted an exercise to monitor and benchmark the size and causes of price differences. Two surveys were conducted: one on consumer electronics and one on fresh food (1). The results show that large price differences continue to exist across Member States for these product types.
Large price differences
Looking at the Table 2 for consumer electrical products below, we can see that, again, no country is shown to be consistently a low or high price country. Germany shows relatively low prices while Denmark and Sweden appear relatively expensive. However, Sweden, for example, shows the lowest price for a certain TV set.
Possible causes of price dispersion
The results of the Commission’s analysis are still preliminary, but these surveys give us some clues about the causes of price dispersion. Price differences are usually the result of a number of factors. The different characteristics of the two product types featured in these surveys can give a useful insight into the underlying causes of price dispersion. For example, the Commission has looked at the importance of brands and found that consumers in some countries often pay more for a particular product because of its brand image. Brand names are seldom found among fresh foods. In addition, their perishable nature adds to their relatively high transport costs and makes them less easily tradable. Consumer electronics, on the other hand, are branded goods and their purchase often involves a significant element of before or after sales service. Advertising to promote brand image is therefore very important for the top consumer electronic companies. But the study found that branding could explain only up to 40% of the price dispersion.
Different preferences and tastes amongst consumers can also play an important role, as well as particular local market conditions. Price differences often arise from barriers to the free movement of goods and services. Although further study is needed, the Commission believes that work in progress to implement its comprehensive Services Strategy (see SMN 25) will make an important contribution to removing some of the obstacles behind the significant price dispersions revealed by these surveys.
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(1) The survey on consumer electronics was conducted in 11 Member States between March 1999 and March 2000, whilst the survey on fresh food was conducted in 10 Member States between August 1999 and August 2000.