Monday, March 07, 2011

A monopoly for creating monopolies

Someone correct me if I wrong, but it is my understanding that the UAE has exclusive car dealerships (monopolies) and that these monopolies are protected by the monopoly power of the government. On top of that, many of these companies sell more than one brand. Consumers would be better off if there was competition.

In Qatar, the Peninsula newspaper reports that exclusive dealerships are likely to go:
Plans are afoot to open up protected dealership trade to foreign competition to ensure that the prices of durables (including, perhaps, automobiles) and other key imports come down to rational levels. Exclusive dealerships are so far a monopoly of Qatari companies and the law (Number 13 of 2000) regulating the trade forbids non-Qatari investment in
It is, however, not clear how the existing car or even other dealers could be affected by the amendments since they have inked long-term dealership contracts with overseas manufacturers and have been allotted ‘specified territories’ as their target markets.
Also, Qatar has its own set of standards and specifications for cars which are different from other GCC states. Considering that car dealers from neighbouring states are allowed to set foot here, they will have to import cars of different standards and specifications. This might frustrate the economy of their business.
Setting your own specifications is a classic way of deterring competition.

Does the move to greater competition have anything to do with heightened political pressure for reforms?



Blogger James O'Hearn said...

The UAE does have the car monopolies, and I suspect that in Qatar the ruling clique is facing the same issue that occurred in the UAE - namely that the families with the monopolies grow so fabulously wealthy, that they can appear to be a legitimate, destabilizing threat.

The monopolies are virtual mints, printing boatloads of cash. They are able to move their wealth into a massive array of investments, and create economic empires that give the proprietors undue economic (and therefore political) influence. Al Futtaim is one example of this - car dealerships, hypermarkets, malls, restaurants, you name it. A while back AF got the AT&T treatment after the head of the family passed away, where the company was split amongst the brothers.

11:54 PM  
Blogger Richard said...

Each Gulf country has a different way of operating its auto-monopolies; what is the case in Qatar is very different in, say, the UAE.

In Qatar, the big issue that comes from a monopoly is inflated cost, whereas in the UAE, the issues have been customer service, after-sales service and reselling.

But on the other side of the coin, the years of shared experience these established family firms have had with their manufacturer colleagues means that they know their market extremely well, and this local knowledge can only be for the benefit of business.

I am no economist, I'm afraid, but these are only monopolies in terms of brand and they do not operate as a cartel, in the UAE at least. This is reflected by the fair prices on offer as a result of market forces pulling consumers from one brand in a segment to the next as a result of design, technology, engineering, service and price.

Your interesting post spurred me into writing a short analysis of this on my own blog, I hope you don't mind me posting a link to it here.

7:27 PM  
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