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Maximum Prices on Compulsory Vehicle Inspections

30. august 2006

4/0120-0204-0026/ISA/KHS/AJE The Council Meeting on 30 August 2006

On 30 August 2006 the Danish Competition Council recommended that the maximum prices on compulsory vehicle inspections should be abolished.

The Council’s recommendation emerges from a report by the Danish Competition Authority analyzing the competitive conditions in the market of compulsory vehicle inspections. The Ministry of Transport and Energy has requested the report as part of the liberalizing of the market of compulsory vehicle inspections that came into force on January 1st 2005.

The report generally shows that the liberalizing process of the compulsory vehicle inspections is a success.

Since the liberalization plenty of new companies have entered the market. This is partly due to entry barriers being relatively low in the market – it is found to be easy and not considerably expensive to establish a new inspection company. Since January last year the number of companies has thus tripled and the number of inspection sights has doubled.

These many new entrants have caused a considerable degree of over-capacity in the market. This over-capacity entails the companies to compete more actively to maintain their market position. The report also shows that companies compete ac-tively in the areas of service, location and quality.

However, in relation to inspection prices it is found that the price competition is somehow weak in the market since all companies follow the maximum prices very close. When comparing Danish inspection prices with those of other European countries, it is also seen that there ought to be scope for a lower price level in Denmark. In spite of the considerable degree of over-capacity, the lack of price competition may surprise and the explanations also rest on an uncertain basis. However, there is a risk that the maximum price is viewed as a benchmark for the “allowed price” and therefore becomes the price level companies seek to obtain.

Due to nearly all competitive factors indicating an effective competition, the Coun-cil finds that the removal of the maximum prices on compulsory vehicle testing would stimulate price competition which is why the Council recommends that the maximum prices should be abolished by January 1st 2007.

For additional information, please contact head of division Niels Rytter (+45 7226 8097) or head of section Kathrine Høg Smedegaard (+45 7226 8142).