Existing Market Structures as a Distribution of Sunk Costs and Strategic Assets: new cars, used cars and comparative economics

Publication Type:

Conference Paper


Gerpisa colloquium, Paris (2013)


The existing organization of the new car market is a bordered component in what Williams et al (1998; 2006: 105-108) call the ‘motoring matrix’. This matrix encompasses the extensive infrastructure which supports the industry in its existing form, as well as a series of related services – maintenance and repair, replacement of parts, finance, insurance, etc. – that are consumed jointly with the product and which generate or are associated with profit streams for the range of participating firms in the industry. The cross-connections running through the matrix are fundamental to business models: for example, Bernard Jullien (2002) highlights the (wealth-regressive) cross-subsidy of new car sales by the profits earned on the manufacture of replacement parts for used cars. This entire network of relations, including the existing (dominant) forms of market organization in which original equipment manufacturers (OEMs) identify the sale of new cars and of replacement parts for used cars as principal profit centres (profit-seeking experiments in car financing have not ended well: see Freyssenet and Jetin 2009), can also be viewed as a substantial sunk cost, potentially inimical to radical change.

At the same time, there is no reason why the existing network of relations should in any sense be an optimal one, whether viewed from the perspective of a desirable end-state for the industry judged against criteria like sustainability and social inclusivity or from the perspective of removing obstacles to the traverse towards a desirable end-state. One suggestion, which emerges in papers like Ceschin and Vezzoli (2010) on extended producer responsibility models for the industry, is that traditional patterns of car ownership could be (or should be) displaced by de facto car leasing models. Here, original equipment manufacturers would reorient their activities and seek profit not so much in the sale of new cars and replacement parts but in the organization of the overall design and delivery of ‘car access’ with ‘car services’ packages to customers. In several papers we have explored this proposal from a perspective looking at what this might imply for rates of new technology introduction and old technology disposal and for public policy design for the auto industry (see Coffey and Thornley 2012; 2013), while accepting and emphasising the importance of the organization of the motoring matrix and of cross-connections between the markets for new cars, used cars, and car parts.

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