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From the New York Times comes a straightforward example of 3rd degree price discrimination. Prices of certain luxury vehicles are much higher in China than in the U.S. For example, the Porsche Cayenne,  has a base price of  $150,000 in China but $50,000 in the U.S. Price discrimination invites arbitrage, and the invitation in this case is so generous, that many people have accepted. Curiously, some of those who have accepted have been arrested, charged and fined for mail fraud and violations of customs laws.

Manufacturers have restrictions in their contracts with dealers to prohibit this sort of arbitrage, in part this is because cars produced for sale in one country will not be comply with extant regulation in another country. Interestingly, it is illegal for anyone other than the original equipment manufacturer to export NEW cars overseas. USED cars are an entirely different matter. US customs believes that if I buy a new car, and then drive it straight to the port to ship to China, it remains a new car. On the other hand, if I drive it home, it is used. Subsequent cases will turn upon the question of makes a car new vs. used?

As an aside, Ken Sparks, spokesman for BMW North America, defended the Governments vigorous pursuit of the arbitrageurs with these words:

Illegal exports deny legitimate customers here in the U.S. the popular vehicles, which are in high demand.

I can only imagine the pain of being denied a BMW. Perhaps, they could better show their concern by giving away the car for free.

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