Competition is bad for car dealers

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One of the ways in which we Americans argue we have the best economy in the world is by pointing to our free markets. The theory says there’s complete openness between supply and demand. Sellers and buyers are free to agree prices and exchange money for goods or services. Government is not supposed to get in the way by passing laws unless something is interfering with the freedom of the market, e.g. the seller is a monopoly and gouging the buyers. Except, of course, the power of lobbies is sufficiently strong to enable sellers to persuade lawmakers to pass laws to protect their positions. Why should this happen?

Obviously it’s all about the money. If sellers are able to command high prices, they want to keep it that way. The answer is restricting competition. The more barriers there are to other people offering comparable goods and services, the more protected the profit margins of the original sellers. These sellers therefore pass on some of their profits to the lawmakers who pass laws erecting barriers. That way, the sellers are protected, the buyers get reduced choice, and America becomes a less attractive place to live.

One of the most interesting current examples is the problem faced by Tesla Motors. For those of you living in the bubble of the conventional gas-powered engines, Tesla make beautiful electric vehicles. They should be on sale all over America, except they are not. This is not because states are against environmentally friendly electric vehicles. It’s all the fault of Elon Musk who wants to sell his cars directly to the public. Think Apple as an example of what economists call vertical integration. If you want an iPhone or iPad, you can go to an Apple store and buy it directly from the maker. So here comes Musk with his plans to open his own Tesla dealerships. Wow! that’s a really big no-no! Many states like New Jersey have laws on their books which specifically make direct-to-consumer sales illegal.

Why should this be? Because if you break the dealership model with one motor manufacturer, what’s to stop all manufacturers from doing the same? The answer, of course, is nothing. Any manufacturer should be free to sell direct if that’s what it wants. But the entrenched interests of the car dealerships has been paying into lawmakers’ coffers for so long, there are laws sprouting up all over the country to prevent Tesla from selling direct. The lawmakers, usually from the GOP, are very coy when asked why these laws are being proposed and passed. Republicans are supposed to be for free markets, yet here they are blocking competition for the car dealerships.

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Why should Musk be against the existing dealers? He says there’s a conflict of interest. Dealers currently make their money from gas-powered vehicles and have no interest in selling alternate technology. More importantly, it’s easier to sell existing technology. Dealers would have to retrain and learn new stuff. If that’s too hard, they would just go back to selling what they know the best. So there you have it. Thanks to the politicians we elect, you may soon not be able to buy an electric car directly from Tesla and that would be a tragedy.

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