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Drew Bixby


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Tesla was blocked from selling cars in Texas. Is this a bad sign?

In the book Why Nations Fail, (http://whynationsfail.com/) the authors argue that inclusiveness is what made the US great and extractive-ness is what makes nations like Venezuela fail. Very generally, inclusiveness means everyone has an equal opportunity to compete and the laws support such an environment. In contrast, extractive-ness is an environment where rules, over-regulation, political favors, and financial weight give preference to certain groups over others.

This case with Tesla seems very "extractive"/non-iinclusive by their definition. Is this just isolated or is this a bad sign for the state of things in the US?

In case you are not aware, here is a brief synopsis of the Tesla case:


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    Jun 16 2013: I am glad I read the synopsis, or I would have misunderstood your question!

    As I read it, numerous states have laws that prohibit direct sales of cars over the internet. It is not that the states are singling out Tesla but rather that they have been unwilling to grant Tesla an exception to the rules that apply to all other manufacturers. In other words, in Texas, GM and Ford cannot sell over the internet either.

    So the issue in the article is really not that any particular manufacturer is being prevented from selling cars. It is that no manufacturer is permitted to sell their cars there over the internet.

    I think the question of what public policy reason there is for not allowing any manufacturer to sell over the internet might be more pertinent to the situation you describe.
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      Jun 17 2013: Fritize, thanks for your contribution!

      I agree that Tesla should not get an exception. My concern is that the laws are so complex (and biased toward certain established entities) that they need to get an exception to simply sell a new type of car. Are we locked into requiring car dealerships to sell cars for the next century? What if we had required all TV's and stereos still to be sold only through TV repair shops?
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        Jun 17 2013: Are you saying that there is something about the type of car that makes it impossible to sell through dealerships? Is there a reason Teslas could not be sold through dealerships that makes the dealership requirement a bias?

        This seems a separate question than whether the public interest is served by mandating a particular sort of distribution system for a product- particularly cars.
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          Jun 17 2013: They could arguably sell through dealerships, but this would significantly increase the cost to the end user.

          Also, dealerships are not likely to be interested in selling them as the maintenance is little to none. Dealerships make profits on maintenance and repairs. Tesla's are fully electric and have few parts. The repairs are simple since the motor is one relatively small part. If TV repair shops had the laws car dealers do, the introduction of transistor radios and TV's
          might have taken a lot longer to make it to the market (and been more expensive for longer).

          Allowing competition and innovation is absolutely to the public interest.
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        Jun 17 2013: Robert above asked whether the proposal at hand to forego setting up or working through dealerships is about getting a pricing edge by avoiding taxes. That competition is good does not mean that one would necessarily offer a subsidy (such as a tax waiver) to any potential new entrant.

        I think we will get a better handle on the issues if we stick to the issue of what the economic justification is, if any, for requiring dealerships rather than staying at the "competition is good" level.

        Mike focuses on this specific matter above.

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