What exactly is the job of EU’s Competitiveness Council? The man in charge Vice President Mr. Guenter Verheugen believes it to be bridging the economic divide between various countries of EU. Mr. Verheugen describes the free-market agenda he and commission President Jose Manuel Barroso unveiled on Feb. 2 as “a kind of revolution” for the single market of more than 450 million people.
Does EU really constitute a single market? I was taught that you have a single market when the opportunties for price arbitrage within the market are zero or negligible. I was also taught that we have a single market when customers in one part can reference customers in another part of the market. In such a case, EU is definitely not a single market. An internal study by EU shows that prices can vary by as much as 178% for oranges and by 56% for video cassette recorders within EU. Now usually, if there is such a huge difference between prices, there definitely are price arbitrage opportunites. So why are the prices not equalizing as people exploit these arbitrage opportunites? I believe the reason to be quotas and protection within EU. This is similar to US government mandating that a business in Florida cannot export oranges to New York or can market only a fixed quantity per year. Now, I do not know if such a rule exists, but if it does, I for one, would find it very funny.
Secondly, EU is not a single market because the product adoption rates vary significantly across countries. In a paper published by Gerard J. Tellis, Stefan Stremersch and Eden Yin, they argue that the adoption rates vary across countries in Euro Zone. For example, most of the companies prefer to launch a product in the bigger economies of France or Germany. For marketers who are under pressure to quickly ramp up penetration and recoup the marketing costs, these countries could prove to be graveyard given their history of slower adoption behavior. A new product launch in these countries takes on an average 6 years before it takesoff. Marketers under pressure to build momentum quickly can pull the plug on new products too early because they see the adoption rate not rising quickly enough. What are the worst countries when it comes to launching new products? The mediterranean area earns that dubious distinction. On average, the mediterranean countries take twice the amount of time required in scandinavian countries to takeoff.
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