If Apple Can Sell Through Apple Stores Why Can't Tesla Sell Through Tesla Stores?

July 05, 2013

The answer, sadly, lies simply in who has the political power. For if Apple AAPL +0.24% is entirely allowed to set up Apple Stores to sell its own products direct to retail consumers, it should be obvious that Tesla should be able to set up Tesla stores, whether physical or virtual, to market directly to retail consumers. But the fact is that in most of the country Tesla isn’t and Apple is.

This point is made clearly by one of my favourite economists, Lynne Kiesling:

Note that Virginia law prohibits manufacturers from owning dealerships, outlawing vertical integration in the name of promoting competition, which means that a potential competitor can’t use vertical integration as a competitive strategy (yeah, that’ll promote competition …). Think about that restriction, and apply it to another innovative company: Apple. Dealer franchise laws in electronics would prohibit Apple (and Samsung, etc.) from operating its own stores. How would such a law affect competition in electronics? The answer is not clear, which is the point; vertical integration is not inherently anti-competitive at the retail level. In many ways, these laws are a relic, a holdover from a century ago when the economics of vertical integration was not well understood and vertically integrated firms with market power were per se suspect.

What’s worth noting here though is that it is not Apple’s political power which allows them to be so vertically integrated. They’ve not had to throw their weight around in the legislature to gain a dispensation to sell direct. No one even thought to think of insisting that they must sell through AT&T T -4.11%, or WalMart, or any other independent of the manufacturer retailer. And the electronics retailers have most certainly never had the political power to insist that electronics must be sold through independent retailers.

However, car dealers have been able to insist that cars may only be sold through independent dealers. And they still have sufficient political power to maintain that as the status quo even though our understanding the the economics of the matter has improved. Which is why Tesla’s having those problems with its desire to market direct: simply entrenched political power at the State level. I’ve said it before and no doubt I’ll end up saying it again at some point. But one of the reasons we’ve got such problems with economic growth is that we’ve allowed to many people to put roadblocks in the way of capitalism’s gales of creative destruction. Maybe selling cars direct is a good idea, maybe it’s a bad one: but we most certainly shouldn’t be leaving the power to determine whether it should happen or not in the hands of those who will lose out if it turns out to be a good one.