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Liberalizing A Distribution System: The European Car Market


  • Randy Brenkers

    (Katholieke Universiteit Leuven.)

  • Frank Verboven

    (Katholieke Universiteit Leuven.)


We quantify the competitive effects of liberalizing the selective and exclusive distribution system in the European car market, based on a model of oligopoly pricing with differentiated products. We consider two possible competitive effects from liberalization: (i) the creation of international intrabrand competition (cross-border trade), which will result in a reduction of international price discrimination; and (ii) a possible cumulative effect arising from a strengthening of national intrabrand competition, which would result in reduced double marginalization. We find that the reduction in international price discrimination mainly redistributes consumer gains across countries; it has a positive but modest effect on total welfare. If liberalization also has the cumulative effect of reducing double marginalization, the welfare effects are much higher. Finally, we find that the effects of liberalization on the manufacturers' profits are either small or positive. This finding implies that international price discrimination, and softening competition through a double marginalization mechanism, should not be interpreted as main profit motives for the previous distribution system, but only as unintended side effects. Hence, the industry rationale for maintaining the previous distribution system should be sought in other areas. (JEL: F15, L42) Copyright (c) 2006 by the European Economic Association.

Suggested Citation

  • Randy Brenkers & Frank Verboven, 2006. "Liberalizing A Distribution System: The European Car Market," Journal of the European Economic Association, MIT Press, vol. 4(1), pages 216-251, March.
  • Handle: RePEc:tpr:jeurec:v:4:y:2006:i:1:p:216-251

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    Cited by:

    1. Tran, Tat Thanh & Zikos, Vasileios, 2017. "R&D networks among suppliers and manufacturers," Economic Modelling, Elsevier, vol. 60(C), pages 151-161.
    2. Xiao, Junji & Ju, Heng, 2016. "The determinants of dealership structure: Empirical analysis of the Chinese auto market," Journal of Comparative Economics, Elsevier, vol. 44(4), pages 961-981.
    3. A. Auer, Raphael & Chaney, Thomas & Sauré, Philip, 2018. "Quality pricing-to-market," Journal of International Economics, Elsevier, vol. 110(C), pages 87-102.
    4. Hellerstein, Rebecca & Villas-Boas, Sofia B., 2010. "Outsourcing and pass-through," Journal of International Economics, Elsevier, vol. 81(2), pages 170-183, July.
    5. Fadairo, Muriel & Yu, Jianyu & Lanchimba, Cintya, 2017. "The Choice of Exclusive Dealing: Economic Rationales and Evidence from French Retail Chains," Journal of Retailing, Elsevier, vol. 93(3), pages 317-335.
    6. Chu, Junhong, 2013. "Quantifying nation equity with sales data: A structural approach," International Journal of Research in Marketing, Elsevier, vol. 30(1), pages 19-35.
    7. Noton, Carlos, 2016. "Structural estimation of price adjustment costs in the European car market," International Journal of Industrial Organization, Elsevier, vol. 49(C), pages 105-147.
    8. Murry, Charles, 2018. "The effect of retail competition on relationship-specific investments: evidence from new car advertising," International Journal of Industrial Organization, Elsevier, vol. 59(C), pages 253-281.
    9. Auer, Raphael A., 2017. "Product heterogeneity, cross-country taste differences, and the growth of world trade," European Economic Review, Elsevier, vol. 100(C), pages 1-27.
    10. González, Eduardo & Cárcaba, Ana & Ventura, Juan, 2015. "How car dealers adjust prices to reach the product efficiency frontier in the Spanish automobile market," Omega, Elsevier, vol. 51(C), pages 38-48.
    11. Herbert Dawid & Gerd Muehlheusser, 2019. "Smart products: liability, timing of market introduction, and investments in product safety," CESifo Working Paper Series 7673, CESifo.
    12. Belleflamme,Paul & Peitz,Martin, 2015. "Industrial Organization," Cambridge Books, Cambridge University Press, number 9781107069978, March.
    13. Jorge, Sí­lvia Ferreira & Pires, Cesaltina Pacheco, 2008. "Delivered versus mill nonlinear pricing with endogenous market structure," International Journal of Industrial Organization, Elsevier, vol. 26(3), pages 829-845, May.
    14. Milliou, Chrysovalantou & Petrakis, Emmanuel, 2007. "Upstream horizontal mergers, vertical contracts, and bargaining," International Journal of Industrial Organization, Elsevier, vol. 25(5), pages 963-987, October.
    15. Adachi, Takanori & Ebina, Takeshi, 2014. "Double marginalization and cost pass-through: Weyl–Fabinger and Cowan meet Spengler and Bresnahan–Reiss," Economics Letters, Elsevier, vol. 122(2), pages 170-175.

    More about this item

    JEL classification:

    • F00 - International Economics - - General - - - General
    • L00 - Industrial Organization - - General - - - General


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