(Why) do prices and inflation rates differ within the euro area? We study the relevance of a national border for grocery prices in the otherwise homogenous and highly integrated border region between Austria and Germany. Using transaction data on prices and quantities from a large household panel survey, we compare the prices of identical products within a narrow band along the border. We find large assortment and price differences between the two countries. Even within multinational retail chains the prices of identical products on each side of the border differ on average by about 21%. These price differences are not very persistent, indicating little arbitrage gain from undifferentiated cross-border shopping. Product-level inflation rates differ for only half of the retail chains. Our results highlight the importance of the historical evolution of distribution networks and of the structure of the sales organisation as a driver of price and inflation heterogeneity.
Nothing contributes so much to the prosperity and happiness of a country as high profits