[sophacles]

If you consider that a cornerstone of economics that a economic risk is rewarded when it turns out to have been a good idea, the actions of the dealers undermine the principle. The factory pawns the risk off to a franchisee, until it is shown that the risk is lower than they thought. Then they deprive the risk takers of the reward, or even the ability to pay off the financial burden of taking risk. It harms broader society by discouraging entrepreneurial activity - it stagnates the generation of new business because there is no chance of payoff to anyone who isn't an established player.

Essentially without the protections, the factories found a way to get the reward without the risk.

[icebraining]

That's only true if dealerships are a pure commodity, with no first-mover advantage or way for dealerships to differentiate themselves besides price. I'm fairly ignorant about the issue, but I find that idea extremely unlikely.

[rgbrenner]

A franchisee pays the manufacturer a license fee. They get a discount from the list price on the product, but that price is still higher than the manufacturing cost.

So consider what you're suggesting...

A manufacturer has costs of X, and will sell the good in the market for X + M (markup).

The franchisee will purchase the goods from the manufacturer and sell them for X + M + L(license fees per unit) + DM(dealer markup).

So while the manufacturer receives M + L for profits (and could match the dealer prices to receive as much as M + L + DM).. the franchisee receives only DM.

So what you're suggesting is that with the dealers lower profit margin, they could somehow provide better service than the manufacturer (that the manufacturer will not be able to match or exceed).

That is tough. Probably even impossible. Service costs money.