Price Leadership and Discrimination in the European Car Market.

This paper explains differences in the price of the same good in different markets. In the authors' model, n producers each play the role of Stackelberg leader on their own market and there is one market with no domestic producer. The authors show that, even without demand differences between markets, pretax prices will be higher on markets where there are high-cost domestic producers and where taxes are low. Evidence from the European car market, based on time series for individual models, supports these results. Furthermore, as the model suggests, exchange rate changes are not passed through to car prices. Copyright 1990 by Blackwell Publishing Ltd.