A common market should spur competition and level prices across nations. This study evaluates the degree of segmentation of the market for agricultural machinery and equipment in the EU. We focus on agricultural tractors which is the most common and biggest investment in machinery and equipment in agricultural practices. By using country price data for individual tractor models, we test the law of one price, i.e., the existence of a common price for tractors across seven EU member states.
We find that significant price differences exist at the same time as large price deviations in a short time are penalized compared to other studies. It is therefore suggested that measures could improve the functioning of the market at the same time as the market seems to be more integrated than many other international market for commodities. The study also shows that transport costs are one important source of price differences as domestic production infers lower prices on the domestic market and as price convergence is negatively correlated with distance. Finally, price differences should not only be understood in the spatial dimension as evidence support the idea that farmers’ buyer power is significant to understand price differences within countries.