Car Eu
Car Price Differentials in the European Union
Submitted By:
‘Group 4’
Jan1, 1993: The single European act became law among member states of EU
Goal: To remove barriers to cross border trade & investment within confines of EU
Benefits: Increased competition & corresponding reduction in prices Jan1, 1999: EU’s member states adopted Euro as common currency Benefits: Would make it easy for the European consumers to compare prices across nations leading to harmonization of prices within Euro Zone
Reason for Persistence of price differentials within EU Since 1985:
Block Exemption Clause:
Regulations that allowed car manufacturers to restrict competition between car dealers.
(Automakers dictated where a dealership could be located, to limit the number of brands that a dealer could sell & prohibit dealer from selling vehicles outside home country) Block exemption clause was scrapped in 2002:
European Commission issued new set of regulations that encouraged competition within EU market (came into full effect in 2005)
1.
What are the sources of significant price differentials in the EU automobile market?
source of price differentials:
‘block exemption’ clause.
Due to this, the car dealers were restricted to carry a free and competitive business among them.
This control on the dealers segmented the market through controlled competition which resulted in such a difference in prices of same cars within the European market. Transportation cost
2. In a pure single market would these price differentials exist? By what process might these price differentials be eradicated?
The price of same commodity will be even in a single market because of uniform terms and conditions of trade, same level of tariffs and regulatory frameworks. But, if companies are allowed to control the location and terms of dealership, then the price difference will still exist in single market. Steps to eradicate the price differentials in market:
Submitted By:
‘Group 4’
Jan1, 1993: The single European act became law among member states of EU
Goal: To remove barriers to cross border trade & investment within confines of EU
Benefits: Increased competition & corresponding reduction in prices Jan1, 1999: EU’s member states adopted Euro as common currency Benefits: Would make it easy for the European consumers to compare prices across nations leading to harmonization of prices within Euro Zone
Reason for Persistence of price differentials within EU Since 1985:
Block Exemption Clause:
Regulations that allowed car manufacturers to restrict competition between car dealers.
(Automakers dictated where a dealership could be located, to limit the number of brands that a dealer could sell & prohibit dealer from selling vehicles outside home country) Block exemption clause was scrapped in 2002:
European Commission issued new set of regulations that encouraged competition within EU market (came into full effect in 2005)
1.
What are the sources of significant price differentials in the EU automobile market?
source of price differentials:
‘block exemption’ clause.
Due to this, the car dealers were restricted to carry a free and competitive business among them.
This control on the dealers segmented the market through controlled competition which resulted in such a difference in prices of same cars within the European market. Transportation cost
2. In a pure single market would these price differentials exist? By what process might these price differentials be eradicated?
The price of same commodity will be even in a single market because of uniform terms and conditions of trade, same level of tariffs and regulatory frameworks. But, if companies are allowed to control the location and terms of dealership, then the price difference will still exist in single market. Steps to eradicate the price differentials in market: