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Comment by opo | Hacker News Reader

>...Maybe the car manufacturers take a public view that's different from their private view.

Maybe without the government forcing the manufacturers to go through 3rd party dealerships, they would still use them, but how about removing the laws and see?

>... Why would a state demand extra hurdles that cost its residents more money?

As the wikipedia article points out, this is really a textbook case of rent seeking. This is not what I would consider a controversial opinion.

Rather than hypothesize reasons why the current system is good, maybe first read through the 2 links referenced in the wikipedia article:

https://www.aeaweb.org/articles?id=10.1257/jep.24.3.233

https://www.justice.gov/atr/economic-effects-state-bans-dire...

Note that the second paper is written by the anti-trust division of the Dept of Justice.

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>Maybe without the government forcing the manufacturers to go through 3rd party dealerships, they would still use them, but how about removing the laws and see?

I actually read a pretty good reason not to remove these laws a while ago (and it is tangential to the argument about pricing that I made a while ago): It is impossible for independent resellers to compete with the manufacturer. This actually happened with Teslas: when Tesla dramatically lowered its prices to get more money, it effectively destroyed the used market and took money out of the pockets of anyone else who had used (or even basically new) inventory.

This kind of thing happens with other products too. For example, you usually can't buy a book from a publisher for less than the list price, because they don't want to undercut their distributors who are incurring significant costs to stock the books for them. (I think Amazon also requires companies that sell on Amazon to not undercut them by selling for cheaper elsewhere, despite the fact that their fees are high in some cases and they can even sell stuff for a loss.) I think the equivalent courtesy for car dealers would be that the manufacturer would be forced to pick a price and stick to it, at least at the wholesale level. That way, any independent dealer who does buy inventory can be assured that they won't face huge losses if the prices are cut upstream.

Finally I guess there is the question: do we really need the independent dealers, if the risk is all about the manufacturer cutting prices? We do, because these dealers make the market more efficient. That competition means you can shop for the best price or time window when buying or selling, without using Craigslist or classified ads. Dramatic decreases in price also affect owners and finance companies (in case of default). If the manufacturer can just decide "Hey we need to pump out a Porsche for everyone in the world" then they won't be worth what the original buyers paid, and they might walk away from the loan to buy a new one for half the price.

>... It is impossible for independent resellers to compete with the manufacturer.

Yes, those who manipulate the legislature to do rent seeking, might lose those profits when the law is removed. That is actually a feature, not a problem.

>...We do, because these dealers make the market more efficient.

Again, independent economists and the Dept of Justice don't agree with you.

>Yes, those who manipulate the legislature to do rent seeking, might lose those profits when the law is removed. That is actually a feature, not a problem.

As I said, independent dealers provide liquidity to the auto market. When there is only one buyer or seller in any other case, we call it price gouging or price fixing. Additionally, the "extra profits" or savings (in some cases) actually do contribute to maximum satisfaction of consumers. For example, if the only dealers were run by manufacturers then they could unilaterally decide that cars over 5 years old will never be repurchased, dooming those deals to private transactions with zero warranty, or else second-tier used-only retailers.

>Again, independent economists and the Dept of Justice don't agree with you.

Again, appeals to authority do nothing for me. You can probably find at least someone in the DOJ to adopt any opinion you like in any case.

>...When there is only one buyer or seller in any other case, we call it price gouging or price fixing.

Having one buyer or seller of a product or service is neither called "price gouging" or "price fixing".

>...Additionally, the "extra profits" or savings (in some cases) actually do contribute to maximum satisfaction of consumers.

There is really no evidence of that. (The basic concept of rent seeking is covered in any econ101 micro textbook.)

>...For example, if the only dealers were run by manufacturers then they could unilaterally decide that cars over 5 years old will never be repurchased, dooming those deals to private transactions with zero warranty, or else second-tier used-only retailers.

What a strange idea.

>...Again, appeals to authority do nothing for me.

No, that wasn't an appeal to authority.

>Having one buyer or seller of a product or service is neither called "price gouging" or "price fixing".

If you want to be technical, yes. But the two go hand in hand. We have laws to promote competition and the law requiring manufacturers to not sell directly to consumers is one of them. Even if this is technically rent-seeking, it isn't very bad.

>What a strange idea.

It may sound strange but manufacturers have a tendency toward planned obsolescence. They make things to wear out in obnoxious and expensive ways, and restrict access to parts, so far as the law will allow. Nevertheless resale value is important for cars, independent dealers improve market efficiency and the liquidity of cars, etc. I believe manufacturers would abuse their position as exclusive dealers of their products. Tesla sure has.

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