Right-to-repair is both unjust and economically unjustified

Many people understandably resent it when they must pay a higher price for manufacturer repairs and parts when a third-party could have repaired their product for less. Therefore, many people support right-to-repair laws that would require the manufacturer to make parts and service manuals available to third-parties, and which would forbid the manufacturer from restricting third-party repairs in any other way.

But while right-to-repair laws appear attractive at first glance, they are economically indefensible on an objective cost/benefit basis. In addition, they are immoral and unjust, according to the principles of free-market enterprise. Each of these two objections stands on its own independently of the other.

Right-to-repair is contrary to the principles of free-market enterprise

According to the principles of free-market enterprise, each seller is entitled to sell whatever product they want, on whatever terms they want. In return, each buyer is entitled to choose which product to buy. Both buyers and sellers are free to abstain from trade altogether if they find the terms of trade unacceptable.

Buyers have no right to buy anything, because that would entail a right to compel sellers to sell against their wills. Similarly, sellers have no right to sell anything because that would entail a right to compel buyers to buy against their wills.

The right which buyers and sellers have is the right to a free and fair opportunity to offer terms and compete. A seller has the right to offer anything for sale, but it is up to buyers to decide whether to buy. Similarly, a buyer has the right to offer to buy anything, but it is up to the seller to decide whether to sell.

(Of course, we are assuming, for the sake of simplicity, that there is no fraud or deceit. Laws which mandate some kind of full disclosure or minimum level of safety may be justifiable, but that is another subject.)

This right to competition means that government ought not artificially restrict people’s abilities to buy and sell. For example, governments should not create legal monopolies that grant a single seller or group of sellers an exclusive legal privilege. Nor should governments enact price controls that legislate legal minimum or maximum prices. Buyers and sellers should be free to negotiate mutually acceptable terms, and no legal restrictions should artificially lock anyone out of the market. This is important because government regulation is the single most important source of monopoly.

Quite simply, this means that no manufacturer should be compelled to provide spare parts or service manuals to third parties. Certainly, the manufacturer should be free to do so if they choose. But they should not be mandated to do so. Compelling the manufacturer to provide parts and manuals is no different — morally — than compelling them to sell to someone against their will at a price they did not agree to. Manufacturers and vendors should be free to choose which services and accessories to bundle with their products. By the same token, customers should be free to decide to walk away if the price is too high or the product’s features are not sufficiently attractive.

A right-to-repair law essentially violates the seller’s property right to their own product. Morally, it is no different than any other kind of theft, robbery, or expropriation.

Right-to-repair laws are economically inefficient

Suppose you are not convinced by the philosophical objection. Or perhaps you are convinced, but you are afraid that customers will still be price-gouged. So perhaps you believe that although right-to-repair laws are an objectionable infringement upon the free-market, on the other hand, right-to-repair laws will make repairs more affordable, and so you worry that there is a tradeoff between justice and economic efficiency.

Fortunately, there is no such tradeoff, for right-to-repair laws are not only unjust, but they are economically indefensible as well.

To demonstrate this, let us consider an analogy to antitrust law. Under current US antitrust law, it is illegal to tie or bundle two goods together if doing so is believed to substantially reduce competition. (Tying is when two products are separate, but purchase of one requires a purchase of the other. Bundling is when two products are sold together in a single package.) I say “believed” because ultimately, what matters is whether the US courts believe the tying will reduce competition, not whether it actually will. In fact, economic analysis shows that tying is almost certainly never responsible for reducing competition, but what matters is what the courts believe, not what is true. (See Dominick T. Armentano’s two books, Antitrust: The Case for Repeal and Antitrust and Monopoly: Anatomy of a Policy Failure; and Frank S. McChesney and William F. Shughart II (eds.), The Causes and Consequences of Antitrust.)

There are countless problems with antitrust law, but for now, we will consider the problems that are relevant to right-to-repair laws.

In reality, tying is often a legitimate business practice that has economically beneficial consequences. For example, tying is often used to meter consumer demand. Printer manufacturers often sell their printers below-cost, and then use ink sales to determine which customers have the highest demand. By selling proprietary ink at an above-cost price, the manufacturer is able to effectively charge a lower price for customers with lower demand and charge a higher price for customers with higher demand. This is called “discriminatory pricing,” and it allows manufacturers to charge what effectively amounts to a lower price for those customers who are not willing to pay more.

If every printer were able to use non-proprietary ink sold at a market price, then the price of ink would fall due to competition, but the price of printers would rise, because manufacturers would no longer be able to sell them below-cost. Furthermore, without the ability to use proprietary tied ink as a meter, manufacturers would no longer be able to engage in price discrimination. Every customer would be charged the same price. This would be lower for some, but higher for others. Those who frequently print would pay lower prices on account of the cheaper ink, but those who print rarely would pay higher prices on account of the higher-priced printers. And since those customers do not print very often, they would not save enough money from the cheaper ink to offset the more expensive printers.

It is often not understood by those who object to proprietary tied ink, that the whole system exists precisely so that printers themselves can be sold below cost. They do not realize if that ink were priced more competitively, that printers would become more expensive. These people should be careful what they wish for. If they ever got their wish for competitive, non-tied ink, they would quickly discover that the prices of printers would have greatly increased.

Moreover, economists have demonstrated that discriminatory pricing actually reduces or even eliminates the damage done by monopoly. So if monopoly is a concern, then discriminatory pricing is actually socially beneficial. The last thing we would want to do is ban a monopolist from tying their goods in such a way that it enables discriminatory pricing. Of course, if we can abolish monopoly, we should. But in the meantime, so long as monopoly exists, discriminatory pricing actually minimizes the damage. Antitrust law perversely penalizes a solution to monopoly. The courts have prosecuted a symptom of monopoly, unaware that the symptom is actually a treatment. It is as if the courts were to ban hospitals after noticing that hospitals are full of sick people, believing that the hospitals are the cause of sickness.

For example, in International Salt Co. v. United States, 332 U.S. 392 (1947), the US Supreme Court found the International Salt Co. violated antitrust law by requiring lessors of their salt-injection machines to purchase salt from them. But it is possible that the company used tied purchases of salt to gauge demand for their salt-injection machines. The company may have wished – like the printer companies – to charge below-cost on the machines and above-cost on the salt. If so, this would have been a beneficial case of discriminatory pricing that would have mitigated the harm caused by whatever monopoly power that the International Salt Co. might have had.

Alternatively, tying can be used to guarantee product performance and reliability, as observed by Robert A. Levy in his book, Shakedown: How Corporations, Government, and Trial Lawyers Abuse the Judicial Process (cited by Edwin S. Rockefeller, The Antitrust Religion). Therefore, the International Salt Co. may have designed their salt-injection machines to work best with a certain type or grade of salt. Given that the machines were owned by the company (being leased, not sold), it was the company’s legitimate interest to ensure that the machines were maintained and not damaged. But even if the machines had been sold outright, the company would have had a similar interest. If substandard salt had impaired the machines, then the customers may have wrongly believed something was wrong with the machines themselves, and this would have reduced demand for the machines.

In other words, a company will often wish to tie or bundle two complementary goods in order to ensure their joint effectiveness. This happens so often that we usually do not even notice it. In principle, as Robert Bork has observed, every product could be conceptually disassembled into its components, and thus, every market transaction involves tying and bundling. For example, automobile chassis are bundled with engines and transmissions. We think of the product as a car, but there is no reason why we couldn’t all separately buy a chassis from one company, an engine from a second, and a transmission from a third. The reason why we don’t is that we customers prefer when the components are jointly assembled by a single manufacturer who will ensure that all the parts are compatible.

Thus, tying arrangements often have perfectly legitimate justifications. Insofar as antitrust law prohibits tying, it prohibits sound economic and business practices which would have had socially beneficial consequences. Not only that, but a prohibition of tying and bundling could potentially ban all market trade whatsoever, since — as Bork observed — all products are bundles of their constituent components. If tying salt machines to salt restricts competition, then why doesn’t bundling automobile chassis with engines and transmissions? Why not say that Ford Motor Company is foreclosing competition with the independent engine industry by bundling their automobiles with engines?

Any division between legal and illegal tying and bundling is completely subjective and arbitrary. As Rockefeller notes in The Antitrust Religion, this is the arbitrary rule of man, not law.

Furthermore, whenever tying is not economically justified, any attempt at tying will harm the company. This is because consumers almost always face competitive alternatives. If one company ties its products in a way that is not beneficial to customers, then this effectively raises the price of their product, or equivalently, reduces its quality, making competitors’ products more attractive.

Let us consider an example: suppose an automobile manufacturer decided to honor its engine warranties if and only if all oil changes were performed at an affiliated dealership. This is an economically defensible form of tying. After all, the manufacturer is liable to cover all engine repairs, so they are justified in ensuring that all maintenance and repairs are performed to certain standards. They do not want to warranty an engine that might have been damaged due to someone else’s mistake when changing the oil. On the other hand, this effectively raises the price of vehicle ownership. Many automobile owners want to change their own oil, or get the oil changed cheaper by their preferred mechanic. Mandating dealership oil changes is a defensible means of protecting the interests of the manufacturer who must warranty the engine, but they face the tradeoff of potentially alienating their own customers. If a vehicle manufacturer did try to enforce a mandate on dealership-only oil changes, it is likely that they would lose customers to competing manufacturers who do not tie their oil changes. Evidently, manufacturers have decided this tradeoff is not worth it.

What this means is that any company which is contemplating tying will consider the gains and losses. The gains from tying may or may not be offset by customer goodwill lost due to higher prices. When tying is justified, it means the benefits exceed the costs. And when tying is not justified, then the company itself is likely to realize that any attempt at enforcing the tying arrangement will cause them to lose too many customers to their competition.

Thus, we do not need to worry that manufacturers may tie their products to repair services in an inefficient, economically unjustifiable way. If a manufacturer mandates that all repairs must be done by themselves, this creates a profit opportunity for any company who opens their products to third-party repair. On the other hand, if the tying arrangement is efficient, then it creates no such profit opportunity. In fact, any truly efficient tying arrangement will inspire competitors to imitate the arrangement.

For example, if a policy of mandatory dealership oil changes increased the reliability of the engines by more than it increased the cost of oil changes, then the manufacturer would be able to reduce the prices of their vehicles or advertise their superior reliability (perhaps at an acceptably higher price), gaining more customers. Or perhaps they could offer an even longer warranty than the competition for the same price. Competing manufacturers would have to imitate the practice or else lose market share. On the other hand, if mandatory dealership oil changes increase the cost of oil changes by more than they improve reliability, then any manufacturer instituting this policy will face a competitive disadvantage and lose customers. If the improved reliability is not worth the increased expense or hassle of dealership oil changes, then it will be in every manufacturer’s financial interest to reject the tying policy.

Admittedly, all this assumes that the firm faces competition. But what if they are a monopoly? The Supreme Court’s fear is that a monopolist will extend their monopoly over one product by tying it to a competitive product. For example, the International Salt Co. may have (allegedly) possessed a monopoly over salt-injection machines. But they obviously had no monopoly over salt. Therefore, the fear is that by tying the two products together, the International Salt Co. could effectively gain a monopoly over salt too. The company could over-charge for salt, knowing their customers cannot buy salt elsewhere at a competitive rate.

However, this is not a realistic fear due to what economists call the “law of one monopoly profit.” As Rockefeller and Levy explain, what this law means is that it is generally impossible for a monopolist to use their monopoly over one product to monopolize a secondary, competitive product. This is because the price of any one product is set given the prices of complementary resources. For example, when a manufacturer is evaluating how much consumers are willing to pay for a salt-injection machine, the manufacturer must consider the price of salt. If the price of salt were to markedly increase for any reason, the manufacturer of the salt-injection machine would have to compensate by reducing the price of their machine. And even a monopolist does not charge the highest price they possibly can, because consumers have only a limited willingness to pay, and a higher price will reduce sales volume. It follows that while a monopolist can charge a monopoly price for a product in which they have a real monopoly, they cannot extend their monopoly to competitive products by tying or bundling them together. By creating a monopoly in the secondary product, the monopolist forces themselves to reduce the price of the original monopolistic product so that the whole bundle is priced at a level consumers are willing to pay. Therefore, if a company has a monopoly, then as bad as that monopoly may be for society, tying and bundling will not make it any worse. In fact, as noted, tying and bundling will actually make the monopoly less harmful insofar as tying and bundling facilitate discriminatory pricing.

In summary

Before we return to the question of right-to-repair, let us summarize the problems with the antitrust restriction on tying and bundling, since right-to-repair is essentially a proposed ban on tying products with repair services:

Tying and bundling facilitate discriminatory pricing, which mitigates the harms of monopoly. Banning tying because it is a symptom of monopoly is like banning hospitals because they are a symptom of the existence of disease.

Tying and bundling ensure the effectiveness or reliability of one product by ensuring that complementary products are of a suitable quality or standard.

All products are a bundle of constituent components, so a ban on bundling requires an arbitrary, subjective decision that a certain product is really a bundle of two different products. This violates the rule-of-law.

Economically inefficient tying or bundling will be self-defeating in a competitive market.

Even a monopolist cannot extend their monopoly any further than it is through the use of tying and bundling, due to the law of one monopoly profit.

Since right-to-repair laws are essentially intended to ban the tying or bundling of products with their repair services, on the false hypothesis that tying and bundling lead to monopoly, we may conclude that there is no economic justification for right-to-repair laws.

Conclusion

In conclusion, right-to-repair laws are contrary to both ethics and economics.

There is every reason to permit manufacturers and vendors to tie their products with repair services, banning the use of third-party repairers, and no reason to ban them. Morals and economics are in full agreement.