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Abstract

Recent reports from the European Commission on European Union price differentials for new motor vehicles reflect a steady narrowing of the differences in prices for motor vehicles across the 27 Member States. Although the inclusion within the European Community in 2004 of ten new countries with relatively homogeneous pricing has evidently colored these findings, price differentials among the EU-15 appear to be decreasing. Price convergence has been welcomed by consumer associations and European institutions, which for many years fought arduously to force car manufacturers to reduce these differentials. The justification for their concerns was based on a logical argument. In the 1950s, European nations initiated a progressive process of integration which ripened over the years into a single market--the European Union's pride and primary objective. Car price differentials questioned the very raison d'être of the emerging Community, as they served to re-enhance national borders, which were becoming progressively blurred by the steady elimination of barriers to trade. The blame was subsequently put on distribution restraints-- those restrictions contained in distribution agreements between manufacturers and their dealers. Territorial or customer allocation could be used--and abused--to facilitate price discrimination as a consequence of the resulting "segmentation" of the market for the product. What is more, according to the Commission these restraints were being utilized to impede consumers from shopping for their cars across national borders and from benefiting from price differences. The Commission responded by penalizing those manufacturers considered to be preventing their dealers from selling to customers outside their allotted territories.

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