State Automobile Franchise Laws: Public or Private Interests?

Abstract

As detailed in this perspective, the view that state auto franchise laws are protectionist is inconsistent with the evidence and theory used to support the claim. Moreover, an economic model of car and service sales shows that franchise laws, by introducing an intermediary between the individual consumer and the powerful manufacturer, serve valid public policy considerations and can be pro-consumer. In selling an automobile-service bundle, the independent dealership may have better incentives with respect to consumer desires than does the manufacturer. As such, it is not unreasonable for state legislatures to choose a market design that best serves their constituents.

Keywords: Automobile, Competition, Intrabrand, Interbrand, Car Prices, Econometric, Antitrust

JEL Classification: L62