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Re: He's not wrong (archive)

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Posted by Ray Chen on September 27, 1999 at 15:28:07:

In Reply to: He's not wrong posted by MikeW on September 27, 1999 at 10:46:03:

There are two ways of fixing prices.

One way, dictating a fixed price, is probably illegal *unless* the dealerships are owned by the parent company. In that case, the dealerships are merely retail outlets for the company and their pricing is under strict corporate control.

Unless the car company has a monopoly on the car market or an important segment of it, this is legal.

The second method is also legal. That's when you calculate precisely how much profit you're willing to allow a dealership (franchisee) to make on a car and set the dealer cost for the cars so that if the dealers discount below MSRP in any significant way, they don't make enough money to stay in business.

I think the second method is hard to do but can be done via mechanisms like different destination charges, advertising charges, etc. for different regions of the country which would make the cars cost a little more or less in the different parts of the country. Hopefully, enough to make to compensate for the higher operating costs in region X without incenting too many people to pull a "Cutter" :-) and buy from a dealer in region Y who has lower costs and can therefore charge a somewhat lower price. I believe this method is legal also.

And if BMW catches you misbehaving, they either
fine-tune the model, alter your allocation or both. I suspect that should be legal too.

- Ray

: Think about it. Why are the car dealer independent businesses, and not simply owned by the car manufacturers? Why do the manufacturer's publish a 'suggested retail price' instead of just imposing a fixed selling price. The reason for both of these is that back at the last turn of the century, the government decided that allowing large manufacturing operations to control all aspects of their industry, from raw materials through retail distribution (know as vertical integration) was bad for the consumer. Think in terms of the old Standard Oil and US Steel monopolies (which were also horiztally integrated, but that's another story). They passed antitrust laws to prevent this. This was also a large part of the reason for creating the Federal Trade Commission.

: Now fade forward 90-100 years. The mfgrs are trying to stick their toes back over the line, by trying to dictate retail selling prices to their dealers. They'll see if the get bitten by the government. If not they'll push a little more. At some point, someone will push back. Maybe that time is now.

: I have a friend who is a lawyer. She used to work for a big firm that did class action litigation. She jokingly asked me if I knew anything that would make a good class action suit. I may bring this up to her, more in terms of Saturn/GM than BMW, since BMW hasn't actually tried this yet. Think about it. If it can be shown that by limiting competition between dealers, GM booted the margin on all the Saturns sold by a fairly small amount, say $100 per car, that means that over the total number of cars sold, we're talking well over $100 million (don't know how many cars Saturn has sold total), that GM and its dealer essentially scammed from its buyers. And it could be much more. So figure she could take a 33% contingency fee, and give be a 10% of that as a finders fee (damn, I should have gone to law school).

: : Price fixing is not illegal! Now if all the major car manufacturers met and agreed to charge agreed-upon charges, then that is illegal. But that's not called price fixing, it's called collusion. BMW alone fixing its prices is not illegal in any way shape or form. Saturn does it. Bose does it with their consumer products whether it's sold by Best Buy, Circuit City or whomever.

: : In fact fixed price selling does mean that no one else will pay a better price than you did for the same item. So your last complaint is totally illogical.

: : If you don't like the damned price then don't buy the damned car. And if enough people don't like the damned price, then the damned price will go down. That's what free enterprise is about.

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