Tuesday, 12 August 2014

Seems fair enough to me.

From the BBC:

Drivers are being charged different prices online for the same car rental based on where they live in Europe, the European Commission has said.

Charges vary for some motorists, even if they are picking up the same vehicle from the same location and from the same hire company.

The Commission said that price discrimination based on residence broke the rules of the EU's single market...

The Commission highlights one case in which a German driver searched online for a vehicle to hire in the UK. When the driver filled in Germany as country of residence, the price doubled.

OK, car hire companies make a reasonable profit (£50 a day? 100 a day? It's ages since I hired a car) from the well behaved drivers who return the car on time and without damage. Clearly, that income has to be averaged out over days when the car remains on the forecourt, and they can only get top whack for hire cars which are fairly new, so knock off depreciation etc.

The problem is, it only takes a pinch of shit to spoil a bucket of porridge. If a car hire company loses one car in ten every year (or one in five, or whatever it is), that eats up most of their profit from the well behaved drivers.

These companies have records on which cars went missing, or were badly damaged but the driver disappeared and we can safely assume that these records show that 'foreign' drivers are a worse risk (remembering that British drivers are foreigners in most countries). That extra they have to pay is like an insurance premium.

If this were not the case, then the companies would undercut each other down to the level where the premium for foreign drivers is lower.

Or possibly they are operating a cartel and genuinely ripping people off? Who knows?


Dinero said...

alternatively they are quoting higher because they know the out of country potential customer has less choice, - and that is deemed to be more unsporting.
Its probable that international rental companies keep an eye on other international rental companies prices as in a market specific effect on prices.

The Stigler said...

I've not seen any evidence of a cartel in car hire and monopolies and cartels normally exist because of things like government legislation or network effects.

Where I live there's not only the big guys, but also a couple of local van rental companies and a local car rental company. Go to Malaga there's loads of car rental companies other than the big guys. And those companies are generally a bit cheaper because of the lack of brand identity.

And having rented with Hertz in France, the price seemed pretty similar to renting a car here.

For all we know, that bloke could have changed country and in the time between, someone booked a car and tipped the pricing over.