Review of Industrial Organization 17: 313–323, 2000.
© 2000 Kluwer Academic Publishers. Printed in the Netherlands.
EU Commission versus Volkswagen: New Evidence
on Price Differentiation in the European Car Market
MATTHIAS G. LUTZ
University of St. Gallen, Institute of Economics, University of St. Gallen, Dufourstrasse 48, 9000 St.
Abstract. This paper is motivated by the large ﬁne the European Commission imposed on Volk-
swagen in January 1998 for obstructing sales to foreigners. The ﬁrst part discusses the competitive
framework in which the car sector operates, especially the exclusive dealership system. This is
followed by a detailed examination of the degree of price-differentiation across national markets
by 24 major manufacturers. The evidence reveals VW and Audi not to be special cases. This ﬁnding
implies that the Commission should reconsider its own block exemption if it wants to establish a
more competitive car market along the principles of the Common Market.
Keywords: Car market, European Commission, price-differentiation, Volkswagen ﬁne.
JEL Classiﬁcations: F15, L11, L62.
On 28 January 1998 the European Commission ﬁned the Volkswagen Group ECU
102m for refusing to sell Volkswagen and Audi cars to foreign buyers in Italy. This
was the largest ﬁne ever imposed by the Commission on a single company. It fol-
lowed complaints by individuals, mainly Germans and Austrians, who had wanted
to buy the company’s cars more cheaply in Italy than in their home markets.
Commission’s investigation revealed that the company, together with its Italian
subsidiary, Autogerma, had systematically forced their franchised dealers not to
sell cars to foreigners. The commission identiﬁed a number of illegal practices,
such as threats to dealers that they would lose their franchises if they sold cars to
foreign residents, and the rationing of deliveries. The company even went as far as
The author wishes to thank Manfred Gärtner and Friederike Pohlenz for several useful
comments and suggestions, and Jean-Robert Tyran for earlier discussions. The usual caveats apply.
Most complaints referred to 1995. On 1st May that year, for instance, a VW Golf 1.6 CL was
28% more expensive in Germany than Italy (using prices net of taxes and adjusted for differences in
characteristics as explained below).