Economic Effects of State Bans on Direct Manufacturer Sales to Car Buyers

Posted by D. Daniel Sokol

Gerald R. Bodisch (DOJ) examines the Economic Effects of State Bans on Direct Manufacturer Sales to Car Buyers.  I think that this is an important paper.  The reason that the franchise rules work the way they do is because of public choice concerns.  There are lots of local dealers (although the number will be shrinking soon thanks to GM and Chrysler bankruptcies) with lots of political power at the state level that make sure to protect themselves from competition.  Hopefully this paper will move the debate forward by shedding light on how laws can be changed to reflect pro-competitive concerns and to protect consumers from special interests that missuse government regulation for anti-competitive ends.  This is a must read for state legislators and consumer groups. 

ABSTRACT: State franchise laws prohibit auto manufacturers from making sales directly to consumers. This paper advocates eliminating state bans on direct manufacturer sales in order to provide automakers with an opportunity to reduce inventories and distribution costs by better matching production with consumer preferences.