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He is wrong! (archive)

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Posted by . on September 28, 1999 at 00:41:26:

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

: 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).


I know the whole history of U.S. antitrust regulation. Kinda taught a course while working on a Ph.D. in Economics for one of the top 10 Econ departments in the U.S.

Your proposed class action suit is on shaky ground. Very hard to convince a judge that it harms the consumer because Saturn will just say that the competition posed by the other car manufacturers is enough to impose some price discipline on them. And then they'll add that consumers actually like the fixed price approach because it frees them from all the anxiety and inconvenience associated with traditional car-buying practices. Finally, Saturn can then trot out an endless parade of real customers who will testify that they like the no-haggle pricing.

You have to keep in mind, fixed prices by one mfr in a market that has lots of competing mfrs will not harm the consumer. So what if he is able to compel his dealers to offer a uniform price? He'll have to fix it low enough to still get some business. You think if GM suddenly is able to impose uniform pricing on all their dealers, GM will be able to jack-up their prices and not hurt their bottom line? They'll still have to contend with Ford, Chrysler, Toyota, Honda, etc. in the world's most competitive car market.

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