NCPA - National Center for Policy Analysis

Middlemen Cost Consumers Money, Convenience

March 6, 2001

Consumers can go online to buy computers, plane tickets, household products and many other items, cutting out the middleman and reducing costs. But franchise laws make it illegal for car companies to sell directly to consumers, and observers note the well-connected, deep-pocketed dealership industry has convinced most states that when it comes to cars, dealers know best.

The result: higher prices and less convenience. And the auto industry isn't alone in restricting transactions that cost consumers $15 billion a year according to a report from the Progressive Policy Institute.

Other examples:

  • Licensing laws in about 15 states require companies that make, broker or service residential mortgages to have an office in the state before getting the license.
  • Music retailers sued Sony Music for putting inserts in its CDs advertising its own website that sells CDs directly.
  • When five airlines funded a one-stop ticket shopping site called Orbitz, travel agents filed a complaint with the Justice Department.
  • Wine wholesalers convinced 30 states to ban direct sales of wine to consumers, meaning that if they wanted wine from a certain winery, there's no alternative to the retail store.

While in every case the complaining group claims it's acting in the public good, critics point out the real purpose of the laws is to restrict competition.

Source: Editorial, "Middlemen Squeeze Shoppers," USA Today, March 6, 2001.


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