Cross-country price dispersion: Retail network or national border?

Why do prices differ among regions without significant trade frictions, such as the euro area? This study examines the impact of a national border on grocery prices in the economically and culturally integrated German–Austrian border region. Based on retail transactions from a large household panel, we analyse price differences of identical products sold within a narrow band along the border. We show that even retailers operating in both countries charge different prices for identical products on each side of the border. Over all products, prices are on average more than 14% higher on the Austrian side. The underlying absolute price differences average to around 20%, but vary over products and time, suggesting limits to arbitrage in cross-border shopping. This study demonstrates that even in highly integrated areas, national borders continue to matter for retail pricing.