State Automobile Franchise Laws : Public or Private Interests?

First, we address the claim that state auto franchise laws are protectionist and thus serve primarily private rather than public interests by comparing the evidence presented to support this view to the theoretical predictions from economic theory and what we know about car markets. We conclude that the evidence presented does not provide much support for a protectionist slant on these laws. Second, we evaluate the competing claim that the independent dealer serves an important role for consumers. Using a Nash bargaining model that is motivated by accepted facts about auto sales, we find that there are consumer benefits of state laws requiring independent sales of automobiles — primarily, lower prices for consumers. Indeed, we find that a consumer motivation for these laws has good support and appears to be most consistent with the available evidence