"Ted Mittelstaedt" > wrote in message
...
>
> "Ray O" <rokigawaATtristarassociatesDOTcom> wrote in message
> ...
>>
>> >
>> > What happened to competition? Seems to me there ought to be a big
>> > case here for an anti-trust price fixing lawsuit against the tire
>> > manufacturers.
>> > Anyone have any ideas?
>> >
>> > Ted
>> >
>>
>> It is possible that all of the tires you shopped were made in the U.S.,
>> which would reduce the disparity in manufacturing cost.
>>
>
> That might be true, and it is true that there are not a lot of other tire
> manufacturers
> that make that size AND that mileage and UTQGS rating I looked at.
>
> But, if I went to a treadwear and UTQGS rating of about 1/2 of what I
> surveyed,
> then there's an order of magnitude larger number of tire manufacturers
> making that
> size. But, they are ALL the same tire price ALSO (or within very small
> amounts
> of each other) for that treadwear and UTQGS rating. I'd find it hard to
> believe
> they all make tires in the US.

As Mark A pointed out, in a free economy, selling price is determined by
what the market will bear. The more competition there is, then the closer
the prices will be for products that the buyer perceives to be the same.

> After surveying I found NOT a lot of price coorelation between tire
> mileage
> warranty and price, but I found a LOT of price coorelation between
> different
> tires of the same UTQGS rating. I found a LOT of tires with DIFFERENT
> mileage rating but the same UTQGS specs. So I tend to discount the stated
> mileage as marketing fiction. What matters is UTQGS. And another telling
> indicator of the importance of UTQGS is that some manufacturers hide it.
> Goodyear, for example, doesen't post that on their website - they tell you
> you have to get it from the tire brochure at the tire dealership.

The UTQGS was developed to provide a uniform method of comparing tires, and
since mileage ratings are not part of the grading system, tire makers have
and use mileage ratings for "wiggle room" in their marketing.


> However, it's pointless. The cheapest tire I could find in that size is a
> 40K tire and it's only 1/3 cheaper for 1/2 the treadlife. For
> only 1/3 again more of the price you get double the tire life. Plus the
> mounting
> costs are all the same cost as well as the road hazard warranty. In other
> words
> I can buy a road hazard warranty for 40K miles or a road hazard warranty
> for
> 80K miles - but they both cost the same. If the road hazard warranty was
> 1/2 the cost for the lower-mileage tire it might be worth it - but the way
> it's
> priced at the tire dealerships, it's cheaper-per-mile for the more
> expensive
> higher mileage tire. Not to mention with a 40K mile warranty you have to
> replace the
> tires twice as often so your doubling your installation costs.

Due to R&D, raw material, overhead costs, and competition, the price of
tires is not linear, and so the selling price of a tire with twice the
treadlife is not necessarily twice the price of the tire with the lower
treadlife.

People who research the UTQGS and who have the money will buy the tire with
better ratings, but there are a lot of people who know little or nothing
about tires, who do little or no research, and/or who do not have the money
to afford the better tire so the tire makers offer lower priced tires to get
a piece of that market segment.

>
>> Tires are a competitive business and a company whose products are priced
>> higher will have a tough time competing without a product attribute that
>> a
>> consumer is willing to pay for, especially in the most common sizes like
>> 205/70-15.
>
> That I understand well. But that isn't how competition is carried out
> these
> days. In most commodity markets there are maybe a maximum of 2-4
> manufacturers who are
> dominant players plus dozens of small fry. For example, in computer
> software
> it's Microsoft
> and Linux distributions. In computer hardware it's Dell, HP & IBM. In
> hard
> disk
> drives it's Seagate and Western Digital. In soft drinks
> it's Coke and Pepsi. In cars it's GM, Ford, Toyota, Honda & maybe
> Chrysler.
> In US crude oil it's Exxon, Texaco and a few others. And so on and so on
> and so on.
>
> All these commodity markets got this way because these dominant players
> gobbled
> up competitors until they ran up against the anti-trust regulators of the
> world's
> governments who prohibited further market acquisitions. Manufacturing
> economies of scale in today's markets dictate that the larger you are the
> cheaper you can make things. In most markets, consolidation sets in
> and continues until the governmental regulators put a stop to it, or
> declare
> a monopoly market and start regulating the dominant monopoly.
>
> Naturally, in these markets the few dominant competitors have the same
> product price since the margins are so thin - these companies make money
> on volume.

I think you answered your own question here.
>
> It's only in niche markets (ie: specialty foods, etc.) that there's still
> a
> large
> number of companies, or in commodity markets (like milk) where the
> product cost is so low that freight charges make global distribution
> uneconomical, and you cannot reduce the product bulk (ie: freeze
> dry it) to reduce shipping But tires are very expensive and they are also
> very complex and take a lot of technology to manufacture.
>
> As you say, tires are competitive. And since there are so many many cars
> out
> there, there's huge amounts of tires sold. And since tires are complex
> and
> not
> easy to manufacture in the barnyard, the product lends itself to a
> commodity
> manufacturing model of single-source manufacture with wide distribution.
> But
> the reality is that the market does not appear to work this way. It seems
> to me
> that in reality, tires are far more expensive than they should be, because
> the
> tire companies have spent so much money on making hundreds if not hundreds
> of
> thousands of slightly different but almost the same model of tire. So you
> have
> a situation where there's a lot of small manufacturers all making small
> production runs,
> instead of a few large manufacturers making a few giant production runs.
>
> The situation seems really ripe for a well-heeled tire manufacturer to
> start
> acquiring
> other ones and killing off product lines right and left, and substituting
> a
> few
> much cheaper product lines, then making their profit on bulk. That is the
> pattern that has happened in the past in most other commodity industries
> with
> this kind of product, and the only reason I can come up with that it
> hasn't
> happened in the tire industry is that all of the tire manufacturers have
> gotten
> together and formed a secret cartel of some kind to fix prices.

While the most common tire sizes have become commoditized, tire makers offer
a lot of products in other sizes and areas, like earthmoving, farm, and
industrial equipment; aircraft; racing (which has a huge number of sizes and
types - Indy, Nascar, F1, off road, and everything in between); truck and
tractor trailer; and niche tires (low profile, snow, rain, high security).
Most tire makers also make other non-automotive products that use rubber
like bellows, gaskets, seals, shoe parts, etc. This diversity in product
lines enables them to make money on niche products with less competition.


--

Ray O
(correct punctuation to reply)