Price Differences and Price Setting in the European Car Market

The creation of the Economic and Monetary Union (EMU) and the introduction of the Euro on 1st January 1999 have resulted in great expectations in several fields, not least in that of competition. In the first issue of the “Competition Policy Newsletter” in 1999 it was suggested that the introduction of a single common currency would have a profound impact on competition in Europe and would do so for three reasons: Firstly, the article argued, the Euro would enhance the benefits of the “Single Market Programme” by eliminating exchange rate risks and transaction costs. Secondly, the Euro would increase price transparency. Thirdly, the Euro ought to improve the efficiency of the capital markets and so attract more newcomers to the market and increase the number of mergers. At the same time the article warned that the increased competition as a result of the Euro might tempt businesses to try to compensate for it by indulging in new anticompetitive practices, such as preventing parallel imports, creating anticompetitive mergers and applying for state aid.