The myth of the domestic brand bias for automobiles in the European Union

The domestic brand bias has been one of the most commonly used explanations for automobiles price differences across international borders in the EU. Using a panel dataset comprising of 51 models across 21 EU member states, we take advantage of cross country heterogeneity, and find that, controlling for income aspects, the domestic brand bias does not work in the way it was originally thought of. Instead, we find patterns of collusion among the major manufacturing groups in Italy, Germany, and France. The presence of a domestic producer affects however, the way that foreign manufacturers (especially Japanese) price their cars. We also point to the fact that income aspects are not to be neglected. The UK market, which was historically thought of as one of the most expensive markets, turns out to be the most competitive market when income controls are taken into account. This is consistent with the actual market concentration indexes in the UK.