The EU hinders companies to compete!

The EU hinders companies to compete!


When companies compete in separate markets, different competitive measures are often taken by companies in those markets. People in those markets, because of culture, values goods and services differently and are willing to pay for goods and services in accordance with those values. For instance, in Italy, people are very willing to buy cheap cars made by the Italian car manufacturer “Fiat”. Volkswagen, decided to sell their cars in Italy to Italians for lower prices. Volkswagen, thought, that these measures were needed in that market to compete effectively. People from Austria and Germany went to Italy in search for bargains “offered by Volkswagen”. Volkswagen dealers said no. Low prices are only offered to Italian customers! For these “crimes” The European Union's High Court upheld a $110.5 million fine for Volkswagen. This happened in 1998. Now, Volkswagen and other companies must have same prices in all markets to all people, otherwise they risk to get heavily punished. In other words, if people are willing to cross borders in search for bargains, it is better for a company like Volkswagen, to raise its prices* in Italy and lose market share. Apart from Volkswagen, the Italians will suffer. Alternatively, they could have the same low prices in all markets, but that might not be profitable or even lead to bankruptcy. In the very end, competition is hindered! This is only an example of Government in action and what it actually does “to promote competition”.

For more information about this case, go to;

http://www.globalethics.org/newsline/members/issue.tmpl?articleid=09220316204320

And to;

http://news.bbc.co.uk/1/hi/business/821620.stm

For some further information, go to;

http://www.businessweek.com/magazine/content/02_19/b3782014.htm

The flexibility of the market is needed.

Different situations in diverse markets need different actions, but Government agencies are guided by rigid rules. Governments do not know how to run an economy, they lack the essential tools; the free market. The more Governments intervene in the economy, the more chaotic will the economy be. Governments decision making is relied upon whims by the electorate, markets, on the other hand, are relied upon prices of supply and demand; recourses are allocated to those ends which are valued most highly by consumers. When mentioned destructive actions bloom, like in the former Soviet Union, the “destructiveness is revealed”. In the case I have mentioned, consumers have not gained anything if Volkswagen raised their prices in Italy because of this verdict. Rigid rules can lead to situations like that. Governments do not know the different circumstances that exist in diverse markets, to apply the same rigid rules in all markets do not gain anybody.

For example, in Sweden car manufacturers guarantee car bodies against corrosion for 6-12 years. Swedish consumers demand this, probably because of our climate. I do not actually know, but I do not think that the same manufacturers offer the same guarantees all over the world.

Naturally, weak companies that do not serve the consumers well will try out every possible way to use those laws to protect them against competition. As the antitrust authorities do not, as mentioned, know all different circumstances, their verdicts will probably be wrong.

If we really want increased competition, why not adopt free trade between nations. Why does the EU and the USA not follow that path? The reason is that they do not want increased competition.

For an example, I quote from answers.com;

“In the United States, the decade from the mid-1980s to the mid-1990s saw import quotas placed on textiles, agricultural products, automobiles, sugar, beef, bananas, and even underwear—among other things. In a single session of Congress in 1985, more than three hundred protectionist bills were introduced as U.S. industries began voicing concern over foreign competition”.

Go to;

http://www.answers.com/import+quotas?gwp=11&ver=2.0.1.458&method=3



*From the book “Antitrust The Case for Repeal”, by Dominick.T. Armentano, page 18:

“Governments antitrust suits against firms that price discriminate almost always result in the defendant firm raising some of its prices to comply with the law.”


Björn Lundahl
Göteborg Sweden