Economic analysis shows franchise laws benefit consumers

Economic analysis shows franchise laws benefit consumers

A new study by two economists at the nonprofit Phoenix Center concludes that state franchise laws do not limit competition and in fact lower prices for consumers. The analysis was done in response to a recent inquiry posed by the Federal Trade Commission as to whether these decades-old laws still benefit consumers.

–All the evidence suggests that there is intense competition leading to very low margins on new-car sales,” said study coauthor and Phoenix Center Senior Fellow T. Randolph Beard.

Instead of consumers engaging in one-off transactions with powerful manufacturers, dealerships are in a continual relationship with manufacturers and choose to bundle sales and service in a manner preferred by consumers, the Phoenix Center said.

–When selling an automobile-service bundle, our analysis indicates that franchised auto dealers have a better incentive with respect to consumer desires than car manufacturers,” said study coauthor and Phoenix Center Chief Economic George S. Ford.

The Phoenix Center is a Washington-based nonprofit that studies broad public policy issues related to governance and social and economic conditions.