case study

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Synopsis: The case addresses the issue of significant price differentials of same cars in European market, despite a high level of economic integration. EU has established itself as an economic and political group leading itself to a single market, but still there are significant price differences in the products. The case diagnoses the reasons and its future prospect in the European market. Q&A

Addressing the Questions:
Q.1: What are the sources of significant price differentials in the EU automobile market? Despite of strong economic integration through EU, the concept of one market is still not feasible in the Europe. The issue is more highlighted with the price differentials within the region. 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 competition policy enabled the car manufacturers to control the location and terms of trade for the car dealers. Due to this, the car dealers were restricted to carry a free and competitive business among them. Although the manufacture of cars was market driven its distribution was controlled by the manufacturers. As rightly sighted in the case, that if a dealer wanted to initiate a business in Belgium, then the company might restrict the dealer to sell cars of other brands or to sell the its own car to other countries. 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. Apart from this main reason, other factors that might boost the price differences in European market could be as follows: * Different levels of transportation costs in different markets * Varying levels of purchasing power among the market

* The cost of conducting business like rent, salary expenses, income tax level etc. will ultimately affect the pricing of the cars in different countries * Even the...
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