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Press Release

NEW PHOENIX CENTER STUDY DEMONSTRATES THAT CONSUMERS BENEFIT FROM

INTRA-BRAND PRICE COMPETITION AMONG AUTO DEALERS

Changing State Franchise Laws Could Reduce Number of Dealers Which Could, In Turn, Soften

Competition and Raise New Car Prices for Consumers

WASHINGTON, D.C. – In a new analysis released today entitled

The Price Effects of Intra-Brand

Competition in the Automobile Industry:

An Econometric Analysis,

the Phoenix Center addresses the

important question of whether automobile dealers for the same make and model of new cars and

trucks compete on price.

The study finds that consumers significantly benefit from “intra-brand”

price competition for new cars—often in the hundreds of dollars per sale.

Cars are expensive and most consumers know to shop among dealers for the best prices.

Yet,

until this study there has been little to no empirical evidence on the price effects of intra-brand

competition among different dealer franchises for the same automobile model.

Using large

samples of transactions for ten of the most popular new cars purchased in the state of Texas for the

years 2011, 2012, and 2013, the Phoenix Center study estimates the effects of intra-brand

competition on new car prices.

Intra-brand competition is measured as the distance (in miles) to the nearest same-brand

dealer.

Significantly, for all but one of the models, the Phoenix Center’s scholars find that intra-

brand competition does, in fact, lower new car prices for consumers.

For the popular Honda

Accord, for example, increasing the distance between Honda dealerships by thirty miles raises the

price paid by consumers by about $500.

”When two same-brand dealers compete for the business of a consumer on a car, the

bargaining focuses mostly on price,” said study co-author Dr. George S. Ford, Chief Economist of

the Phoenix Center.

“The data show that having multiple same-brand dealers in close proximity

produces significant price cuts for the consumer.

More auto dealers means lower consumer

prices.”

Given that retail margins on auto sales are quite small (about 6% on average), the price

reductions resulting from intra-brand competition are substantial relative savings for new-car

consumers.

Moreover, the Phoenix Center finds that the price effects of intra-brand competition

are relatively strong compared to inter-brand competition—at the sample means, moving an intra-

brand dealer one mile closer reduces prices by the equivalent of an increase in 35 inter-brand

rivals.

5335 Wisconsin Avenue, NW

Suite 440

Washington, D.C.

20015-0234

Tel: +1 (202) 274-0235

Fax:

+1 (202) 318-4909

www.phoenix-center.org

Contact: Lawrence J. Spiwak

Phone: +1 (202) 274-0235

FOR IMMEDIATE RELEASE

Wednesday, March 11, 2015