The Uniform Grading System for Tires: Its Effect upon Consumers and Industry Competition

• Date: 01 December 1974
• Published date: 01 December 1974
• DOI: 10.1177/0003603X7401900409
• Subject Matter: Article

THE UN,IFORM GRADING

SYSTEM

FOR

TIRES:

ITS

EFFECT

UPON CONSUMERS AND

INDUSTRY COMPETITION

by

LOUIS

P.

BUCKLIN-

Although precise product standards,

and

the grading of

products with respect to these, theoretically represent

the

finest information abuyer can employ to guide his buying de-

cisions, there has been surprisingly little

pressure

in the con-

sumer movement

for

the expansion of such systems.

Part

of

this

apparent

lack of

interest

lies in

the

difficulty in creating

practical

standards

that

consumers can readily understand.

Another factor is

that

even where grades have long been estab-

lished, as

for

certain agricultural products, consumers have

often been insufficiently motivated to

learn

grade

designations

and

their

meanings.'

A new opportunity to appraise this technique now exists

in the form of a proposed uniform

grading

system

for

auto-

mobile tires. Arevised version of

the

system, announced in

March of 1973 by the National Highway Traffic Safety Ad-

ministration

(NHTSA),

though subject to

further

postpone-

ment

and

change, is scheduled to become effective in May of

1975':~

The purpose of this essay is to evaluate the impact

of the proposal upon consumer welfare.

It

is also intended

to venture beyond

the

direct effect of the proposed system

upon consumer buying and to extend the analysis to the

broader

issue of the indirect effects resulting from changes

in

industry

structure

and

competitive behavior. This ex-

-Professor, School of Business Administration, University of

California, Berkeley.

1T. Q. Hutchinson, "Consumers' Knowledge

and

Use of Govern-

ment Grades for Selected Food Items" (Washington, D.C.: U.S. De-

partment of Agriculture,

April

1970).

:a

Federal Register, 38, no. 44, March 7, 1973, pp. 6194-6202;

and

Federal Register, 39, no. 116,

June

14, 1974, pp. 20808-20813.

783

784

THE

ANTITRUST

BULLETIN

panded analysis of issues reflects the view

that

developments

within the domain of the consumer movement increasingly

overlap the

arena

of

antitrust

and

that

solutions to problems

must

necessarily take both perspectives into consideration.

It

is additionally

appropriate

at

this juncture to consider

the structure of the

tire

industry

because of the

antitrust

action being initiated by the Justice Department.

In

August

1973,the Department served complaints against the two

largest

tire

producers, Goodyear and Firestone, charging them with

attempted monopolization

and

requesting divestiture of post-

World

War

II

acquisitions," Of concern here is whether or

how such judicial action might be modified in view of the

proposed new consumer information system.

To examine these questions, this essay will first review

briefly certain characteristics of

and

recent changes in the

tire

industry's structure. The

nature

of the proposed uniform

grading system

for

tires will be examined, and some empirical

evidence of

its

impact upon consumer buying will be

set

forth.

Analysis of the effect of the proposed

program

upon the con-

sumer from both direct and indirect action of the system will

then be developed and conclusions drawn.

TIRE

INDUSTRY

STRUCTURE

Production in the

tire

industry

is highly concentrated, with

89 percent accounted

for

by the top five firms

..

'The role of

small manufacturers, some thirteen in 1956,

has

dwindled

slowly.

With

the recent exit of Gates from this

latter

group,

only nine fringe producers remained in 1973. None of these

were financially robust; profits

for

most have averaged

sharply below those obtained by the

largest

firms," Some have

a negligible

tire

output

and

others sell

partly

through the

SBureau of National Affairs, Antitrust and Trade Regulation

Report, August 14, 1973, p. A-I.

4Ibid., D-I.

5U.S. Federal Trade Commission, "Rates of

Return

in

Selected

Manufacturing Industries, 1962-1971" (Washington, D.C.: U.S. Gov-

ernment

Printing

Office,

1973), pp. 13, 14, 46.