The European Commission has launched an assessment of the automobile distribution system in the European market. The current regulation of this system is set to expire in September 2002. According to the European Commissioner for Competition this system limits competition and restricts price convergence among Member States. Automobile producers, on the other hand, claim that taxation is one of the main causes of observed price spreads. An econometric analysis of data broken down by model provides new insights into these questions. It shows that there has been no convergence of prices excluding tax, since the implementation of the Single Market. Nevertheless, convergence is presently underway, but is being masked by the impact of currency fluctuations. Furthermore, greatly varying taxation across countries is an important factor leading to price dispersion.
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