[Reader question]: “I just bought a used car from a dealership and it was pretty miserable experience. Why do you think there hasn’t been more of a push to allow car manufacturers to sell directly to consumers? It doesn’t seem like the car dealership lobby could be thaaat strong (especially compared to home owners associations or other areas of regulatory capture)”
No, it really is that strong.
There’s a very widespread misperception that the biggest companies have the most clout in politics, when actually highly fragmented industries like auto dealers have more clout as a collective. Just a small example is that when congress was putting the Dodd-Frank financial regulation overhaul together, Elizabeth Warren rolled the entire financial services industry and got her Consumer Financial Protection Bureau created. But to round up the votes in congress, she had to swallow an exemption from CFPB oversight for auto loans because the car dealerships had the clout to demand that.
The key to dealership strength is that there’s a dealership owner (or several) in every district, and they are rooted in the local community — often involved in sponsoring sports teams, visible on local television news, and generally playing a major role as a local influencer. People feel sentimental about local businesses. Republicans like free markets but they love businessmen, so if businessmen want to back an anti-market policy, Republicans are inclined to agree. Democrats are more skeptical of businessmen but less enthusiastic about markets, so it lands in the same place.
Maybe the political economy around mid-size factory farms is different from that around car dealerships, such that these dynamics don’t apply or apply differently. But I would want to better understand the differences. (Is it just that factory farms don’t sell directly to consumers? But my hometown had a membrane filter manufacturing plant when I was growing up, and I think it was similarly locally influential.)
Interesting point. In theory, when an industry has many companies there’s an incentive to free ride on the lobbying efforts of others and overall there’s less lobbying. Whereas if an industry has only one company it captures all the benefits of lobbying, so does more of it.
I don’t know much about US auto dealers, but this paper seems to find that even within that industry, consolidation leads to increased lobbying (if it’s within the same state). But what your example may point to is that industry concentration is not the only variable that influences lobbying power (and therefore the returns to effort). It may be that auto dealer lobbying has a free-riding problem, but because they are well placed otherwise to lobby have more incentive to solve the free-rider problem (I’d guess history and the culture of the industry matter a lot).
The animal agriculture industry may have more lobbying advantages than auto dealers – there are many farmers but they are geographically dispersed (and often located in geographies overrepresented in political systems) and there are few ‘integrators’ (these are the chicken companies etc.) so they can better coordinate lobbying efforts. The economic interests of farmers and ‘integrators’ aren’t perfectly aligned, but perhaps the ‘integrators’ partially solve the free-rider problem of having many farmers.
Cross-posting my comment from Substack:
How sure are we that this is the case? Matt Yglesias argues:
Maybe the political economy around mid-size factory farms is different from that around car dealerships, such that these dynamics don’t apply or apply differently. But I would want to better understand the differences. (Is it just that factory farms don’t sell directly to consumers? But my hometown had a membrane filter manufacturing plant when I was growing up, and I think it was similarly locally influential.)
[cross-posting my response from Substack :)]
Interesting point. In theory, when an industry has many companies there’s an incentive to free ride on the lobbying efforts of others and overall there’s less lobbying. Whereas if an industry has only one company it captures all the benefits of lobbying, so does more of it.
I don’t know much about US auto dealers, but this paper seems to find that even within that industry, consolidation leads to increased lobbying (if it’s within the same state). But what your example may point to is that industry concentration is not the only variable that influences lobbying power (and therefore the returns to effort). It may be that auto dealer lobbying has a free-riding problem, but because they are well placed otherwise to lobby have more incentive to solve the free-rider problem (I’d guess history and the culture of the industry matter a lot).
The animal agriculture industry may have more lobbying advantages than auto dealers – there are many farmers but they are geographically dispersed (and often located in geographies overrepresented in political systems) and there are few ‘integrators’ (these are the chicken companies etc.) so they can better coordinate lobbying efforts. The economic interests of farmers and ‘integrators’ aren’t perfectly aligned, but perhaps the ‘integrators’ partially solve the free-rider problem of having many farmers.