Auto dealers vs Tesla, taxi commissions vs Uber: Just the same damn rent seeking

By Tim Worstall , written on February 28, 2014

From The News Desk

Sometimes this journalism stuff can be just too easy.

One reader has written in asking what's happening in this fight between Tesla and the auto dealers in New York State. And then a PR agency sends me a blurb asking that I publicise their most recent campaign against Uber and Lyft.

As I say... too easy. They are both the same story: How incumbents, insiders in the political process, are willing to subvert that political process for their own economic gain. A gain, we should note, that comes at the expense of us consumers.

To the Tesla story, an outline of which is here:

ALBANY—Tesla would no longer be able to sell its luxury electric vehicles directly to consumers under a new bill in the New York State Legislature.

Groups representing the state's automobile dealers met with Governor Andrew Cuomo in November to push a bill that would prevent automobile manufacturers from selling their vehicles directly to consumers, public schedules show. Deborah Dorman, president of the Eastern New York Coalition of Auto Dealers, was at that meeting and said Tuesday Cuomo aides told the group the governor would sign the bill if it passes. That's all pretty simple to understand. If car manufacturers have to sell through dealers then that means that dealers get a slice of the sale of every car. So dealers are of course going to campaign for manufacturers to have to sell through dealers, they'd be very odd indeed if they didn't.

There was indeed a time when selling through dealers was the wise way for a manufacturer to approach this market and thus we ended up with a large and powerful network of them. Our problem now is that it's not obvious that dealers are necessary (GM certainly tried to get rid of a lot of them going through the bankruptcy) but they are an established feature of the economy these days. More, in any particular electoral district they're likely to be among the largest advertisers in that specific media market. Sure, national advertisers spend far more, but the local TV station or paper worries far more about what Bob's Ford is spending than it does about what's happening nationally.

That prominence in the local economy also feeds through into political power of course. Not just the fawning relationship local media will have with their fat wallets but local politicians too. Which means that we've an extant and incumbent industry, one with political and media power, getting rather pissed at the idea of being disrupted by an incumbent who might selling cars over these here intertubes. Of course they're going to try to craft the law to protect themselves and there's no point whining about the fact that they do.

We should understand that that is what they're doing, however they dress it up in consumer protection of a level playing field type rhetoric. And once we do understand them then we can give them the correct answer, which is no.

The second story was one of those little bits of serendipity that floated into the inbox:

National Association Launches Campaign Against Unregulated Transportation Companies Uber, Lyft and Sidecar

Campaign Creates First-Ever National Incident Report System to Help Passengers With Bad Experiences Register Complaints

ROCKVILLE, Md.—A national trade organization has today launched a campaign to counteract the misinformation spread by Uber, Lyft and Sidecar and to help passengers with concerns about these unregulated transportation companies.

“Who’s Driving You?” is one part information portal for those seeking facts about the rise of the so-called “ridesharing” industry, and one part help desk for passengers concerned about the ugly side of Uber and its service uberX, as well as Lyft and Sidecar. The campaign is an initiative of the Taxicab, Limousine & Paratransit Association. The important words, indeed the only important words in the entire release and campaign, are those in the last sentence of that quote. This is a campaign by the capital owners in the current taxi market to avoid disruptive innovation in that market. You know, the sort of disruption where they might lose some or all of their capital?

Just as a quick refresher, most parts of the US insist that a taxi have a "medallion", a licence to operate a cab in that city or area. There is always a restriction on the number of such licences offered and they can thus have considerable capital value. $1 million is a reasonable price for one for NYC for example, and $40,000 a year to rent one for one set of 12 hour shifts the usual annual fee. Our actual cabbie has to pay that off before he starts to make anything at all from the fares: and we the cab riders are paying that scarcity value in the prices we get charged.

Along comes Uber, Lyft Sidecar and all the rest and they're disrupting that market. And here's what's actually happening economically: we consumers are able to take more cab (well, be driven in something that really, really, isn't a cab!) rides, at often lower prices, Uber etc are making good money and, crucially, the drivers are making more too. So who is losing out? Yup, the medallion holders and they're not happy about it.

Aw, Bless.

The taxi commissions are, as you would expect, dominated by the medallion holders. This is what we would expect from simple public choice economics. We're all vaguely interested in cab prices and they are obsessed with them so they pay attention more than we do. So the political power over the licencing of Uber et al is largely in the hands of those who simply don't want these new services ever to get licenced. Again, there's nothing very surprising about this. Sure, they might want to dress it up in rhetoric over insurance, or customer safety or some such. But it's just the use of political power and the political system in pursuit of naked economic self interest.

There's also nothing to blame anyone here for either. Hell, when the algorithms are good enough to spew out economic snark without intervention I'll be up there on the barricades screaming "Down with this sort of thing" with the best of them as my own income heads for the cesspit. But that this is normal self-interest and nothing at all to be ashamed of does not mean that we have to agree with their proposals.

They're arguing that their special little economic niche is precious and should not be disrupted, whether it be dealers having a monopoly on new car sales or medallions being required to drive granny to the shops. Let them say it, we can listen politely and then give them the correct answer.


As Adam Smith pointed out the sole aim and purpose of all production is consumption and we should only worry about the interests of the producer in so far as that is essential for the interests of the consumer. Here we've got two obvious cases where the incumbent producers are not offering better than whatever it is that the insurgents are. So their interests are of no account to us at all as we consider whether the regulations banning the insurgents should be allowed to stand or not, be created or not.

And it really is all that simple. In both cases people are attempting to use the political system to carve out, or preserve their already carved out, little rent seeking operation. Given that it's our wallets and our utility that this rent comes from, us consumers that bear the burden of their making that profit, we should simply tell them no. Possibly with the admonition that they should go and play in traffic like the good little children that they are. But we shouldn't blame them for having a go, it's an entirely natural reaction to the situation they're in.

Things do become a little different when we consider the politicians who might actually enact these regulations that steal from us the customers. We might, for example, want to consider what punishment they deserve for betraying us so. But I leave that discussion to you Americans.

[Images via Thinkstock]