An article in the SJ Mercury News a couple of days ago announced a deal between Ford & Toyota  to jointly develop the next generation hybrid engines for light trucks.

 

I have been struck by the fact that I've yet to see any article that takes issue with this collaboration as an effective means of collusion between competitive business's.  I won't go into any detail about why this is collusion, but generally say that joint development between competitors in the same market is as much a collusion to set prices as a direct price setting collusion is.  The reason this is that case is that what you develop is always a tradeoff between capital that must be expended for production of one product of the development process and another.  Generally, there are two options ---- develop a product that has lower capital costs of investment for ultimate production, but which has greater costs of production, and one which requires greater capital investment for production, but which ultimately has lower production costs ----- all other things being equal.

 

In a competitive market, the normal choice would require spending more up-front capital to enable a lower production price and hence better competitive capability.  In a development collaboration between major competitors though, the interest is to minimize up front production capital costs, therefore a joint interest in deciding to opt for the higher production cost option.  This is only possible though if both major competitors agree to go this route... implicit in and obviously in constraint of competition among major competitors.

 

In the current economic environment, capital for new production facilities/methods is dear, so the incentive is to minimize capital use for new production... all the more-so because of current under-utilization of existing production facilities using essentially existing methods.  Therefore inherent in decions made during development of a new product, is that between higher initial capital costs of production with lower costs of production, and lower initial capital costs with the consequence of higher costs of production.  If competitors can decide between themselves to use the lower capital cost route, then they are colluding to decide both will also use the higher cost production route --- meaning to maintain profitability both will increase vehicle prices to compensate for the agreed higher costs of production.

 

In short while it isn't direct price fixing, it is indirectly a price fixing method.   ... equally impacting prices in the end as much as if it were direct price fixing.   It is a collusion between competitors --- and in this case controlling BIG / HUGE markets they already share.

 

So, why hasn't there been some regulatory oversight comments on the "deal"?  Why hasn't there been any other entity that calls out that the deal is really just another form of collusion?  Why isn't this just as much in restraint of fair trade as any other price fixing or monopolistic scheme?