The Determinants of Retail Tyre Prices in the Uk*

In a market in which prices might be thought to be competitive, we find substantial divergences between prices for given brands available at different outlets. The price pattern is consistent with there being market power at the manufacturer and retailer level with vertical linkages between manufacturers and their retail "equity chains" being important. For example tyre chains owned by manufacturers sell other manufacturers’ tyres around 17% more expensively than do independent stores. Independent retailer chains appear to operate divergent policies. This version: June 1997 JEL nos: L13, L81, D83 *We would like to thank the Consumers' Association for providing the tyre price data samples. We also thank seminar audiences at Carlos III, Edinburgh, Fundación Empresa Pública, XII Jornadas de Economía Industrial, LSE, Queen Mary Westfield, Warwick and York. In particular we thank Steve Dowrick, Chris Gilbert, Morten Hviid, Dennis Leech, Pedro Marín, Andrew Oswald, Consuelo Pazó, Margaret Slade and John Sutton for comments, Jeremy Smith for his patience and tyre industry representatives at retail and manufacturer level for general discussions and specific help. Juan Delgado would like to thank The British Council and the “Fundación Cultural Caja de Ahorros del Mediterráneo” for financial support at the initial stages of this research. The usual disclaimer applies. Corresponding Author: Professor Michael Waterson Department of Economics University of Warwick Coventry CV4 7AL Phone: 01203 523427 Fax 01203 523032 email: [email protected]