Local rules shield incumbents from competition

Transcript

Transcribed by machine (Whisper) from the episode’s audio, so a word may be off here and there.

1. 14:31

   And one thing that you guys point out is that there is a pervasive problem of legally protected local monopolies in various industries like auto dealerships, beer distributors, which sounds to me like an expression of that problem that you bring up. So could you expand on that, Eric? How do we come to this, arrive at this place of protecting monopolies in industries that a lot of us don't really think about that much?

2. 14:58

   One place we, as Owen mentioned, we saw the fingerprints of these everywhere millionaires in our public policy in ways that we were surprised to find how much power they really do have to affect these things was tax. But another place is local market regulation. And basically, you know, they get to pole position in the lead in particular industries, and they set up barriers to enter. In some cases, these are historical artifacts of provisions intended to protect the little guy from a very big guy.

3. 15:29

   So we go through a series of industrial vignettes in the book where we try and explore this idea of market power that's not the national big platform of market power that I think we hear a lot about in the press, but more like local regional market power that pervades many industries. So in the case of the car dealers, you have a historical desire to protect small districts. distributors of auto vehicles from large manufacturers like Henry Ford, who were exerting a lot of influence, forcing inventory on them they didn't want, shutting them down.

4. 16:00

   And so the car dealers enshrine protections, franchise laws at the state level across most of the country that protect their position. You can't, as a manufacturer, sell directly to consumers. And you also can't shut down or allow a different car dealer to enter in that turf and provide those toyotas like why do we have toyota as like a place next to you know um ford next to and they all the same person's name under it as opposed to sedan shop it's like a legacy of these um auto dealer protections and as the economy's grown manufacturing become more competitive um the dealers still control that pipe and so they get really rich and so they end up being just like an incredibly central character in this sort of top 1% income share. They're the third highest industry in terms of total dollars that pass through business income that comes from

5. 16:50

   these privately held businesses, which is kind of shocking because you don't think of it as a particularly innovative industry. And it's not an industry where folks are that rich, I think, in lots of other countries. It's a legacy of these little protections. Other industries where we kind of see these everywhere millionaires setting up kind of barriers to enter the beer distributors we talk about the realtors which have a different way of protecting their turf using either control of the mls or using the contact track structure to protect them we talked about doctors and dentists as well these professional guilds that use occupational licensing restrictions to prevent other people from coming in providing some of those services at lower costs to prevent foreigners from moving in and practicing without going through the

6. 17:34

   residency system, all these things serve to restrict consumers' options, to make more opaque the costs, to sort of raise prices and sort of reduce competition that makes these people richer