When you think about it, this is a remarkable news item: Ford and GM have threatened sanctions on their dealers who, because the manufacturers themselves produce fewer cars, charge more to customers than the manufacturer’s suggested retail price (MSRP or “sticker price”). GM called them “bad actors.” Other car manufacturers have warned their dealers. (See “Ford and GM Warn Dealers to Stop Charging So Much for New CarsWall Street Journal, February 9, 2022.)

Except for the saints, who are not many, sellers try to charge as much as the market will bear and buyers to pay as little as possible. Irrespective of the MSRP, which serves merely as a focal point, a market price is generated that equalizes quantity demanded and quantity supplied (in each sub-market, by brand, model, and trim). Until about one year ago, the final price paid in nearly all sales was below the sticker price.

Because of lower car demand at the height of the pandemic and then of the so-called chip “shortage,” car manufacturers reduced their production. They could possibly have maintained it, but at much higher costs, notably by previously carrying higher stocks or by bidding up prices of the microprocessors available on the market. Not all producers of goods containing microprocessors reduced their production. Car manufacturers obviously believed that any alternative solution would reduce their profits more than cutting production. If marginal cost is higher than marginal revenue, a producer reduces his production: it’s economics 101.

Reduced supply probably allowed manufacturers to charge to their dealers higher prices than they would otherwise have charged. To which extent they did it, I don’t know, but what we know is that many dealers, receiving fewer cars, were able to sell them at higher prices because customers bid up the prices. If the salesman thinks that a customer is willing to pay more, he will not accept a lower price from another customer.

The reasons given by manufacturers to prevent dealers to let customers bid up car prices is apparently that it is bad for the brand reputation and will alienate customers. The brand justification is only an excuse, or it collapses into the alienation claim. If higher prices negatively affected brand reputation, lower prices would positively affect it. So why don’t the manufacturers reduce their prices to dealers? Indeed, why didn’t manufacturers cut them earlier? High prices as such are obviously not bad for a brand, otherwise BMW and Porsche would be in disrepute.

In a free society, the manufacturers or the dealers or both will let consumers bid up the prices if the cars get scarcer (just as their competitors will bid them down if abnormal profits are realized). This is just a particular instance of a general phenomenon: the market is a continuous auction in which every consumer ends up getting what he wants if nobody else wants it more.

The second justification—that higher prices will alienate buyers—is as suspicious as the first one. Why aren’t buyers antagonized by any price higher than zero? More importantly, one would think that, at least in a free society, customers would be more antagonized by the shortages, the queues, and the arbitrary allocation that follow from keeping prices below their equilibrium level.

On a free market, some dealers can of course choose, for reasons of personal ethics, to eschew profits by selling some cars at lower prices than what they can get. We can even imagine some nice and saintly consumers who would choose not to buy the cars they want in order to leave them for somebody else. But the generalization of such behavior is unlikely—“unsustainable” as today’s cognoscenti would say—in a society of equally free individuals. Some will want to sell high (so-called “price gougers”) or to bid up prices to get what they want (egoistic consumers). In a free society, nobody would be forced to buy high and sell low, or be considered anti-social if he buys low and sell high.

Is it possible that we now live in a society where a socialist culture is so widespread that producers and consumers all prefer waiting lines and that formal government price controls are not even necessary? The executives of Ford and GM seem to have descended to the level of the postal inspector who, during the worst Covid shortages created by government price controls, justified the arrest of a “price gouger” (who at least had some supplies to sell) by declaring that

the conduct charged in the complaint is reprehensible and against our most fundamental American values.