car price differentials in the european union

8/12/2019 Car Price Differentials in the European Union

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The case addresses the issue of significant price differentials ofsame cars in European market. The case diagnoses the reasons and

its future prospect in the European market. Despite of strongeconomic integration through EU, the concept of one market is stillnot feasible in the Europe. The issue is more highlighted with the

price differentials within the region and also EU has establisheditself as an economic and political group leading itself to a single

market, but still there are significant price differences in theproducts. As mentioned in the case the major source of price

differentials is the restricted free competition among the car dealers

in Europe. The „block exemption‟ clause in the EU competitionpolicy enabled the car manufacturers to control the location and

terms of trade for the car dealers. Due to this, the car dealers wererestricted to carry a free and competitive business among them.

Although the manufacture of cars was market driven its distribution

was controlled by the manufacturers.



Let us assume that there are no governmental or organizationalinterferences in the market, but still then a small degree of price

difference will exist. It is because of the transportation costinvolved in carrying goods from the manufacturing plant to the

market. The proximity to a manufacturing unit will determine thetransportation cost of the goods, which will ultimately be reflected

in selling price of goods. So, in a perfect single market the pricemight not differ significantly but it will still exist.

The following steps will help to eradicate the price differentials in

market:* Complete removal of any barriers to trade

* Perfect flow of information between the markets* A full market driven economy where supply and

demand are controlled



There are several reasons behind the UK market being one of themost expensive car markets, they are as follows:* Tight control and lack of competition among the dealers which

will make their operation inefficient and costly. The main basis forsuch actions is the “block exemption” clause in EU competitionpolicy.* High costs of doing business in UK and its cost of living.* Governmental rules and regulations on dealership and

transportation taxes might be much tougher in UK which will

increase the price of the cars.* The purchasing power of the customers in UK might be higher

than most other European countries.* Sine UK dealers uses the GBP as their trading currency, any

exchange rate fluctuation or inflation in UK is set to influence the

prices of cars in UK.



After the implementation of new regulations, the dealers will befree to set their outlets in any location with any number of brands tosell. This will remove the imposed restriction by the companies onthe dealers, thus enabling free competition and efficiency. So the

degree of price differentials is bound to decrease in the Europeanmarket. But still other factors will be unavoidable, which willmaintain the price differences to some extent. The transportationcosts, national policies, cost of living and doing businesses will alladd to the reasons for setting different prices for different markets.

After the implementation of new law, the major reason for pricedifferentials will be eradicated, thus reducing the level of pricedifferences between the most expensive and the cheapest marketsin Europe. But even this new regulation will not be sufficient tocompletely remove such price differences between the markets.

car price differentials in the european union

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