Was Volkswagen Made a Scapegoat?: A Note on Price Differentiation in the European Car Market

Abstract

In January 1998 the European Commission imposed a large fine on the Volkswagen Group for prohibiting its Italian dealers to sell to foreigners who had been attracted by substantial cross-country price differentials. This note examines whether VW and Audi price-discriminate more than other manufacturers. The evidence reveals this not to be the case and suggests that the company was "unlucky" to get caught engaging in what is likely to be common practice across the industry. More competitive car markets may best be achieved by removing the exemptions from EU competition law granted to the industry by the Commission itself.

JEL Classification: F15, L11, L62