Price Dispersion and Market Segmentation: Evidence from the EU Bottled Water Industry

It is well known that substantial spatial price dispersion persists between countries in the European Single Market (ESM). However, whether this dispersion reflects destination-specific markups, differences in marginal costs, or trade barriers remains an open question. This paper leverages technological and institutional features of the European bottled water industry to estimate the magnitude of trade barriers between EU countries and their impact on price dispersion and consumer welfare. Using a partial equilibrium model of the bottled water industry, I estimate that barriers to trade between ESM countries are equivalent to a 20% import tariff. Relative to an integrated benchmark economy, these trade barriers increase equilibrium international spatial price dispersion by 5% and reduce consumer welfare by an amount equivalent to a 10% tax on bottled water consumption.