Most companies know that the introduction of the euro in January 1999 will increase competition and level prices significantly across Europe. Yet few have changed their marketing and pricing strategies in response.

The opportunity forgone is huge. Over the next few years, it will be possible to create considerable value by carefully managing and delaying price reductions in higher-price countries and by acting to limit the fall in the average price levels of industries and companies alike.

Even before the euro’s introduction, prices across Europe had been converging slowly but constantly as a result of deregulation, the removal of formal trade barriers, the harmonization of regulatory ones, and the reduced ability of manufacturers to influence retailers’ prices. The euro’s introduction will probably accelerate this trend. Customers will be in a better position to exploit relatively small differences in price, as well as more inclined to establish long-term sourcing agreements with foreign suppliers. Some suppliers will harmonize prices in an attempt to gain market share, and many national companies will enter foreign markets as the costs and perceived risks of cross-border trade fall.

Nonetheless, prices still have a long way to move. In the automobile market, for example, variations in...