Tesla, Christie, and Competition

A New Jersey regulatory commission, with Chris Christie’s appointees on it, has announced that Tesla may not sell its cars in New Jersey because the company does not use licensed automobile dealers. Tesla argues that the policies underlying the regulation are not applicable to it and plans to fight the ruling.

The notion that automobile companies should be forced to use dealers to sell cars is absurd. Telsa claims, perhaps as a strategic argument, that the law made sense back in the old days. Tesla says that in the past the car companies had attempted to offer bad deals to the dealers, based on the car companies’ leverage (because the dealers had no where else to go). Hence, the state laws that protected car dealers were necessary. But Tesla argues that nothing like this is applies to it, since it has never used dealers.

I am skeptical of this argument. In the middle of the century, vertical arrangements were often misunderstood (as were markets generally). If the car companies sought to treat their dealers unfairly, that would harm their reputation and make it more difficult for them to have future arrangements with dealers. Moreover, if a car company offered too little, then the dealer could attempt to become the dealer of another company. Further, even if the deals were unfair, there were ways in the future to protect the dealerships, such as using long term contracts and other mechanisms to protect dealers from exploitation by car companies. It would not make sense to establish a law that would harm the public in the future by interfering with competition.

Competition is not just about products. It is also about forms of business organization. And protecting dealerships not only unduly interferes with competition from other forms, but also interferes with competition for the sale of cars since dealers have exclusive territories, which can harm consumers.

The dealers claim that New Jersey law forbids the sale of cars without licensed dealers. Telsa suggests otherwise. I don’t know the answer to this question. But if the law does prohibit sales without dealers, it should be changed. And if it doesn’t, then the New Jersey regulatory commission is pursuing a bad policy.

Sadly, Chris Christie has given his support to the car dealers. If he believes the law prohibits sales without dealers, he could at least argue for a change in the law.

But alas the car dealers are a strong political interest and it would take a man of strong free market principles to stand up to them. Sadly, but not all that surprisingly, it does not appear that Christie is such a man.