Governmental regulation impact on producers and consumers: A longitudinal analysis of the European automotive market

This paper analyses the issue of whether governmental regulation results in higher producer costs that are then passed on as higher prices to the consumer, with a longitudinal study of the European automotive market. Using a large data set for the period 1995–2010 the hedonic price analysis study concludes that the claims that regulation would result in higher per unit costs for new cars are not supported, at least as far as the pass-through into retail or list prices are concerned. Consequently, regulators need a better understanding of what the ‘cost of regulation’ claims entail over the longer term – with the implication that additional costs even where they arise are more easily absorbed than has hitherto been expected.

► The long-term inflation adjusted list prices of cars in the European Union has not gone up.
► There is no significant evidence for the ‘cost of regulation’.
► Outcomes apply to all cars and market segments.