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These laws were established in the 1930s when factories would establish franchisees in (what was to them) low-value regions. As they grew more valuable, they wo

These laws were established in the 1930s when factories would establish franchisees in (what was to them) low-value regions. As they grew more valuable, they would move into the region with factory-owned dealerships & start gouging franchisees. Since then, lobbying power has undoubtedly extended dealership power further than what's generally beneficial. But the starting point, it seems to me, made sense. For a fairly balanced (but not up-to-date as far as the status of legal challenges) starting point: http://autos.yahoo.com/blogs/motoramic/tesla-plans-short-circuit-car-dealers-194619627.html http://autos.yahoo.com/blogs/motoramic/tesla-plans-short-cir...

MichaelApproved 14y ago
"But the starting point, it seems to me, made sense." It doesn't make sense to me. This could be handled with contracts, not laws. When signing a franchise with a factory, you stipulate that they can't enter your market or otherwise infringe on your territory by doing ___________. It's a perfectly fine contract clause that unnecessarily turned into a law.
- boredguy8 14y ago
  If you can't see why that makes sense, I'm concerned for you. You may disagree that it's the right approach, but to say it's not sensible strains credulity. (As to the idea that individual contractors were well-enough connected with each other to guard against the manufacturer's ability to screw them seems unlikely in 1930...but your foray into anarcho-syndicalism hardly seems the point of this thread, aye?)
  - icebraining 14y ago
    They weren't individual contractors, they were wealthy dealership owners, and the proof that they were well connected in their local communities is the effectiveness of their lobby, which created these restrictions in the first place. http://www.econtalk.org/archives/2009/06/munger_on_franc.html http://www.econtalk.org/archives/2009/06/munger_on_franc.htm...
- Vivtek 14y ago
  The problem is that during the initial phase of expansion into a virgin territory, it's in the franchisee's short-term interest to compete with other franchisees by omitting that clause. This is to the longer-term detriment of all franchisees. If you consider that it's in the interest of society to promote a broader prosperity instead of repeated grassfires, then you pass this sort of law regulating commerce. Otherwise, you just end up with a patchwork of factory stores and bankrupt ex-franchisees, along with underserved regions of greater poverty. The problem with the legislative solution is that all that code is undocumented, thus outliving its original purpose and unbalancing market systems two generations down the road.
  - MichaelApproved 14y ago
    "code is undocumented" great term to use for laws. I see what you're saying about the interest of the society needing to step in to force the clause instead of relying on the two parties to include it. Can't say I agree yet but it's given me something to think about.
  - icebraining 14y ago
    Why is the longer-term detriment and bankruptcy of franchisees worse for the broader prosperity of society? If the car manufacturers could undercut them if it weren't for these laws, aren't they just extracting potential customer surplus and transferring it to the franchisees? And why would some regions be underserved? If they were profitable enough to open a franchise before, what would change?
    - MichaelApproved 14y ago
      Regarding your last point, the undeserved areas aren't initially profitable. In the feared scenario, the franchisee spends money to develop that market, expecting to make a profit in the long run. The franchisee is taking a risk on this market. This law is meant to protect that risk and keep the dealer from jumping into the market after the franchisee spent their own money to develop it.
    - sophacles 14y ago
felipemnoa 14y ago
Replace car franchise with YouTube and and factories with content creators. Now imaging that Google wants to push laws so that content creators cannot build their own video sites but instead must be licensed to sites like youtube for the simple reason that youtube was a huge and risky investment. If it sounds ridiculous for Google to do the same thing that dealers did why should the dealers be able to do it?
- sophacles 14y ago
  Not the same thing. The product is not the videos, it's the ads. A more appropriate analogy would be Google selling other video sites access to the ad serving technology, then when that site becomes popular, creating special youtube sub-site that serves identical videos, and telling ad purchasers they can buy ads on the new youtube sub-site for $X or on the other site for $y where $x < $y. The analogy breaks down here, because IP, licensing and so on interfere with direct analogy.

MichaelApproved 14y ago

"But the starting point, it seems to me, made sense." It doesn't make sense to me. This could be handled with contracts, not laws. When signing a franchise with a factory, you stipulate that they can't enter your market or otherwise infringe on your territory by doing ___________. It's a perfectly fine contract clause that unnecessarily turned into a law.

boredguy8 14y ago
If you can't see why that makes sense, I'm concerned for you. You may disagree that it's the right approach, but to say it's not sensible strains credulity. (As to the idea that individual contractors were well-enough connected with each other to guard against the manufacturer's ability to screw them seems unlikely in 1930...but your foray into anarcho-syndicalism hardly seems the point of this thread, aye?)
- icebraining 14y ago
  They weren't individual contractors, they were wealthy dealership owners, and the proof that they were well connected in their local communities is the effectiveness of their lobby, which created these restrictions in the first place. http://www.econtalk.org/archives/2009/06/munger_on_franc.html http://www.econtalk.org/archives/2009/06/munger_on_franc.htm...
Vivtek 14y ago
The problem is that during the initial phase of expansion into a virgin territory, it's in the franchisee's short-term interest to compete with other franchisees by omitting that clause. This is to the longer-term detriment of all franchisees. If you consider that it's in the interest of society to promote a broader prosperity instead of repeated grassfires, then you pass this sort of law regulating commerce. Otherwise, you just end up with a patchwork of factory stores and bankrupt ex-franchisees, along with underserved regions of greater poverty. The problem with the legislative solution is that all that code is undocumented, thus outliving its original purpose and unbalancing market systems two generations down the road.
- MichaelApproved 14y ago
  "code is undocumented" great term to use for laws. I see what you're saying about the interest of the society needing to step in to force the clause instead of relying on the two parties to include it. Can't say I agree yet but it's given me something to think about.
- icebraining 14y ago
  Why is the longer-term detriment and bankruptcy of franchisees worse for the broader prosperity of society? If the car manufacturers could undercut them if it weren't for these laws, aren't they just extracting potential customer surplus and transferring it to the franchisees? And why would some regions be underserved? If they were profitable enough to open a franchise before, what would change?
  - MichaelApproved 14y ago
    Regarding your last point, the undeserved areas aren't initially profitable. In the feared scenario, the franchisee spends money to develop that market, expecting to make a profit in the long run. The franchisee is taking a risk on this market. This law is meant to protect that risk and keep the dealer from jumping into the market after the franchisee spent their own money to develop it.
  - sophacles 14y ago

felipemnoa 14y ago

Replace car franchise with YouTube and and factories with content creators. Now imaging that Google wants to push laws so that content creators cannot build their own video sites but instead must be licensed to sites like youtube for the simple reason that youtube was a huge and risky investment. If it sounds ridiculous for Google to do the same thing that dealers did why should the dealers be able to do it?

sophacles 14y ago
Not the same thing. The product is not the videos, it's the ads. A more appropriate analogy would be Google selling other video sites access to the ad serving technology, then when that site becomes popular, creating special youtube sub-site that serves identical videos, and telling ad purchasers they can buy ads on the new youtube sub-site for $X or on the other site for $y where $x < $y. The analogy breaks down here, because IP, licensing and so on interfere with direct analogy.