Sunday, March 23, 2014

Cronyism Doesn't Promote Competition: It Limits Competition

Following several other states, New Jersey has banned Tesla from selling its electric cars direct to consumers, as you may have heard. This ban is based on a decades-old law that requires car manufacturers to enlist only state-licensed franchised dealerships to market their cars.

In defense of this ban, James B. Appleton, the President of the New Jersey Coalition of Automotive Retailers (NJCAR), defended the law in an op-ed State just wants Tesla playing by the rules. Appleton lists several reasons, from saying the law "protects consumers," to invoking the "public interest," to—can you believe it?—advising Tesla that its direct-sales model is too inefficient!

But this statement really took the cake:

The franchise system of independent new car dealerships promotes aggressive price competition, while the factory-store model advocated by Tesla creates a vertical monopoly and limits competition.

So the president of NJCAR, which is essentially a legally protected cartel, is trying to sell the idea that competition from Tesla limits competition.

But competition is based on voluntary contract to mutual advantage. Only when all producers and consumers are free to act on their own judgement, short of violating others' rights (such as through fraud or breach of contract), can there be true competition.

In the case of mandatory franchise laws, which force automobile manufacturers to contract with independent dealerships in order to sell cars, competition between manufacturers and dealerships is illegal, because consumers are stripped of the choice of buying directly from a manufacturer who may otherwise be willing to contract in such manner. Creating a legally protected cartel of dealerships is the exact opposite of competition.

I left these comments:

When you cut through the nonsensical rationalizations—such as that the government-enforced franchise system "protects consumers," as if forbidding consumers from buying Teslas in Tesla stores somehow "protects" them, or that without such a law "the factory-store model advocated by Tesla . . . limits competition," which only government has the power do and which is exactly what Appleton aims to do by shutting down Tesla sales—what you're left with is that the "public interest" turns out to be the NJCAR interest. In other words, the law Appleton defends is nothing more than naked cronyism.

Businesses and consumers have a right to contract voluntarily to mutual advantage—or not—whether between manufacturers and franchisees, franchisees and consumers, or manufacturers and consumers. The law should protect that liberty of contract equally and for all, not enforce the interests of some at the expense of the interests and rights of others.

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