  By comparing semi-analytic galaxy catalogues with data from the Sloan Digital
Sky Survey (SDSS), we show that current galaxy formation models reproduce
qualitatively the dependence of galaxy clustering and pairwise peculiar
velocities on luminosity, but some subtle discrepancies with the data still
remain. The comparisons are carried out by constructing a large set of mock
galaxy redshift surveys that have the same selection function as the SDSS Data
Release Four (DR4). The mock surveys are based on two sets of semi-analytic
catalogues presented by Croton et al. and Kang et al. From the mock catalogues,
we measure the redshift-space projected two-point correlation function, the
power spectrum, and the pairwise velocity dispersion (PVD) in Fourier space and
in configuration space, for galaxies in different luminosity intervals. We then
compare these theoretical predictions with the measurements derived from the
SDSS DR4. On large scales and for galaxies brighter than L*, both sets of mock
catalogues agree well with the data. For fainter galaxies, however, both models
predict stronger clustering and higher pairwise velocities than observed. We
demonstrate that this problem can be resolved if the fraction of faint
satellite galaxies in massive haloes is reduced by ~30% compared to the model
predictions. A direct look into the model galaxy catalogues reveals that a
signifcant fraction (15%) of faint galaxies ($-18<M_{^{0.1}r}<-17$) reside in
haloes with $M_{vir}>10^{13}\msun$, and this population is predominantly red in
colour. These faint red galaxies are responsible for the high PVD values of
low-luminosity galaxies on small scales.
