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

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