Oligopoly Watch reported yesterday on recent price fixing scandals in the rubber industry. Why does this matter to the motorcycle community? Because we use a lot of rubber products and our suppliers are just as likely to be involved in this stuff as not. Just one cartel identified by US regulators for fixing the price of marine hoses has implicated Japan’s Bridgestone and Yokohama, France’s Trelleborg, UK-based Dunlop, and Italy’s Parker ITR and Manuli among others. That’s the ones they know about. This is just the most recent in a long list of price fixing scandals among rubber companies. EU regulators have been on an anti-trust rampage of late, with 2007 showing the largest number of fines ever.
The motorcycle industry isn’t very big and therefore doesn’t get much attention from regulators. But in the world of multi-national corporations price fixing is a common and natural consequence of having only a few large suppliers. The motorcycle industry is dominated by just six companies. Ever wonder why your Honda is always priced within a few dollars of a comparable Yamaha, which is just a few dollars more than a comparable Suzuki or Kawasaki? It’s called “signaling”, and it’s the way oligopolies control prices – and protect profits – without outright collusion. Again, from Oligopoly Watch:
Signaling is a way for members of an oligopoly to coordinate prices without having to actually talk to each other about it. It’s all about setting points of equilibrium in a market by setting your own prices in keeping with those of others. In a tight oligopoly, there is less likely to be a rogue seller who will not participate in the “gentlemen’s agreement” to maintain steady price ranges. Signaling is a favorite subject of role-playing experiments in economy classes, and based on game theory, mutual cooperation is the best solution for all the participants. But trusting other participants is never easy.
Price fixing isn’t the only consequence of industry consolidation. The irresistible drive for corporate growth has other effects – such as the steady drive to product sameness. As companies grow they become more and more alike, and their products become ever more similar until, one day, you can’t tell them apart anymore. But that’s a topic for another time.