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Report On Motor Car Prices Within The European Union

Report on Motor Car Prices within the European Union

1.0 Executive Summary

The high price of UK new cars has been very much in the news recently. On 10th April 2000, the Competition Commission produced a report that contained widespread condemnation for car manufacturers and addressed a number of key questions.

The report declares that UK private consumers are paying about 40% more for their cars than on the Continent and recommends that the selective and exclusive distribution system (SED) that is permitted by the Block Exemption be abolished immediately if possible and, if not, allowed to expire.

In some ways the Competition has already answered the questions:-

1. To what extent do the differentials in motor car prices within the EU reflect price discrimination by the motor car manufacturers?

2. Should the European “block exemption” which currently allows car manufacturers to restrict to selected dealers the sale of new cars and which is due to expire in 2002 be renewed?

Therefore, this report will first of all explore the general market conditions and those necessary for price discrimination to flourish, then go onto survey the key players; their market share and the degree of price controls they exercise within the market.

The report will also examine the evidence put to the Competition Commission by the Society of Motor Manufacturers and Traders (SMMT) and examine the strength of their justifications. The information has been obtained from the transcripts of the public hearings held on 20th July 1999.

2.0 Characteristics of the EU Car Market

There is much evidence to suggest that price discrimination exists, and is being operated by motor car manufacturers within the EU.

† The European Car market exhibits differing price elasticities of demand, making price discrimination profitable.

† Their objective is to maximise profits - A lack of price competition from rival manufacturers, prevents price competition eroding the...