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Common Currency, Common Market?

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  • Richard Friberg

    (Stockholm School of Economics,)

Abstract

Does the common currency promote goods market integration within the EMU? We argue that such an effect is likely, but that the mechanism typically proposed-lower costs of arbitrage because of increased price transparency-is likely to be of minor importance. Instead we sketch a duopoly model which stresses that lower possibility of future real exchange rate variability lowers the option value of being able to price discriminate. The euro would promote market integration because it is less valuable for firms to segment markets. In addition we argue that fairness concerns and less risk associated with third party arbitrage may be potentially important. (JEL: F13, F15, F41, L40) Copyright (c) 2003 The European Economic Association.

Suggested Citation

  • Richard Friberg, 2003. "Common Currency, Common Market?," Journal of the European Economic Association, MIT Press, vol. 1(2-3), pages 650-661, 04/05.
    • Handle: RePEc:tpr:jeurec:v:1:y:2003:i:2-3:p:650-661
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    Citations

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    Cited by:

    1. Crescioli, Tommaso & Martelli, Angelo, 2022. "Beyond the Great Reversal: Superstars, Unions, and the Euro," Single Market Economics Papers WP2022/8, Directorate-General for Internal Market, Industry, Entrepreneurship and SMEs (European Commission), Chief Economist Team.
    2. Fedoseeva, Svetlana, 2015. "Same Currency, Different Strategies? The Role of the Exchange Rate in Shaping European Agri-Food Exports," 2015 Conference, August 9-14, 2015, Milan, Italy 211630, International Association of Agricultural Economists.
    3. Marina Glushenkova & Marios Zachariadis, 2014. "Understanding Law-of-One-Price Deviations across Europe Before and After the Euro," University of Cyprus Working Papers in Economics 01-2014, University of Cyprus Department of Economics.
    4. Friberg, Richard & Matha, Thomas Y., 2004. "Does a common currency lead to (more) price equalization? The role of psychological pricing points," Economics Letters, Elsevier, vol. 84(2), pages 281-287, August.
    5. Philipp Maier, 2010. "An Analysis Of International Price Differentials On Ebay," Contemporary Economic Policy, Western Economic Association International, vol. 28(3), pages 307-321, July.
    6. Philipp Maier, 2005. "A global village without borders? international price differentials at eBay," Proceedings, Board of Governors of the Federal Reserve System (U.S.).
    7. Bartram, Söhnke M. & Wang, Yaw-Huei, 2015. "European financial market dependence: An industry analysis," Journal of Banking & Finance, Elsevier, vol. 59(C), pages 146-163.
    8. Martin, Julien & Mejean, Isabelle, 2013. "Price dispersion and the euro: Micro heterogeneity and macro implications," International Review of Economics & Finance, Elsevier, vol. 26(C), pages 70-86.
    9. Catherine Gendron-Saulnier & Marc Santugini, 2013. "Noisy Learning and Price Discrimination: Implications for Information Dissemination and Profits," Cahiers de recherche 1335, CIRPEE.
    10. Ibrahim Ayoade Adekunle & Sheriffdeen Adewale Tella & Oluwaseyi Adedayo Adelowokan, 2021. "Macroeconomic policy volatility and household consumption in Africa," SN Business & Economics, Springer, vol. 1(3), pages 1-22, March.
    11. Thomas Mathä, 2005. "Der Euro und Weiterführende Regionale Preiskonvergenz? Resultate aus der ‘Groß‐Region’ um Luxemburg," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 6(1), pages 57-70, February.
    12. Witte, Mark David, 2009. "The currency denomination of external European Union imports after European Union expansion," Economic Systems, Elsevier, vol. 33(3), pages 245-258, September.

    More about this item

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F15 - International Economics - - Trade - - - Economic Integration
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General

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