European Economic Commission On Bus And Trucks Industry

1959 words - 8 pages

1. Introduction

In 1999 the Swedish truck manufacturer Volvo announced its plans to purchase Scania, its main competitor in northern Europe. This purchase would have made Volvo the largest European manufacturer of heavy trucks as well as the second largest bus manufacturer in Europe and should prepare Volvo for an expansion to the new eastern european markets. The European Economic Commission (hereafter EEC) however came to the conclusion that such a concentration would impose an unreasonable burden on heavy duty truck and bus consumers, especially in the Northern European countries Sweden, Denmark, Finland, Norway and Ireland. Hence it denied the merger.
This paper’s purpose is thus to ...view middle of the document...

During their investigations the EEC found out that Volvos market shares and corresponding sales strategies vary substantially across the European Economic Area (hereafter EEA) (European Commission, 2000). In the northern European countries such as Sweden, Denmark, Norway, Finland and Ireland figures indicate that Volvo plays a major role in the heavy duty truck market whereas it only plays minor roles in the remaining EEA markets. In these nordic countries it was found that Volvo was able to price discriminate between the different countries, but also between small and big customers. Adjusted for different specifications the price of the same truck was found to be between 10 and 20 % higher in Sweden than in Denmark and Norway. In Finland the difference to swedish prices was up to 10 %. In Ireland it was observed that the prices of the most commonly sold trucks were more than 40% less than for the same model in the United Kingdom (European Commission, 2000). As Volvo was able to maintain these price differences in neighbouring countries, the data indicates national markets for heavy duty trucks. If there would have been an EEA wide market for heavy duty trucks it is reasonable to assume that arbitrageurs would have taken advantage of these price differences and thereby forced Volvo to establish a common market price. A part of Volvos ability to price discriminate can furthermore be explained by customer preferences and needs but also by means of regulatory issues in different countries. The most common example for such regulatory issues was the swedish cab crash test, which cost of passing marked a substantial barrier to entry for non swedish truck manufacturers. Besides geographically motivated customer preferences it was found that the decision of a truck operator to buy a certain type of truck consists mainly of the price, after sales services, second hand value and warranty conditions (European Commission, 2000). As customers perceived Volvo and Scania trucks as high quality products having effective and well spread after sales networks as well as a high second hand value, Volvo and Scania were able to establish themselves as very popular brands especially in northern Europe, but also became each others substitute and closest competitors. Furthermore it was stated that through problems with guarantees, service, etc. an arbitrage opportunity only exists for price differences above 10 % and given that a customer buys a certain number of trucks. As the majority of truck operators in the nordic countries are small and medium sized companies the majority of market participants could not exploit these arbitrage opportunities. This resulted in a 30 % higher price of a commonly sold truck for small customers compared to large customers, yielding Volvo a profit margin on sales to small customers which was up to 10 times higher then the margin on a large truck operator (European Commission, 2000).

3. The bus market

For the bus market it is an...

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