Companies making certain consumer products often fight regulations. But I believe that in a regulated market, especially premium products can come out on top.
In 2013, the Alliance of Automobile Manufacturers was fighting the proposed mandate of installing rear-view cameras in new passenger cars in the US. The car industry fought this on the basis of cost to the consumer and said it was an attack on consumer choice. These are often the main argument against regulations: cost and consumer choice. I think this is particularly prominent in premium products, with premium car companies like Porsche or Audi having charged a premium for their backup cameras until they finally became mandatory in the US. These “premium” packages often have higher profit margins than the base car. For example Audi is still charging at least 680€ for a package that includes a backup camera that is be a mandatory safety feature in the US model.
I don’t always understand why manufacturers of premium consumer products fight these regulations, however. Here are two reasons I think, they can actually come out on top:
#1: The Relative Cost Argument
The argument here is that a premium product, being priced higher and with higher margins, can absorb the increased price due to regulations much better than a lower-priced product. A $100k premium car can absorb the cost of a backup camera much better than a $25k economy car. A $1000 cost of a camera (automotive cameras are often much cheaper, more like $50) may be 4% of the economy car, but only 1% of the retail price of the premium car. However, the profit margins on premium cars are often much higher. It might cost $20k to make the economy car, but only $50k to make the premium car. I this case, a $1k backup camera would eat 20% of the margins of the economy car, but only 2% of the margins of the premium product.
The counterargument is that the premium product may lose some of its competitive advantage, since the market is distorted and customers that would choose a premium product over the economy option will lose incentive to do so if the feature is always available.
Customers buying the economy product might also have less incentive to so if the price of the economy product is getting closer to the premium product. But this is exactly the aforementioned advantage for the “premium” offering, as the price doesn’t seem as high anymore, compared to competing options that were offered before regulations raised the prices of everything.
#2: The Technology Advantage Argument
The second argument is that the market for any consumer product is already very regulated. Companies that build the best products in this regulated environment come out on top.
As an example, there’s a strict requirement prohibiting lithium-ion batteries with over 100 Wh capacity in carry-on luggage. Apple Silicon machines are so efficient that the MacBook Pro now offers 24-hour battery life with a battery just under 100 Wh. The regulation limiting battery size benefits Apple, since they can offer the longest battery life laptop by having the most efficient CPUs. A competitor with slightly less efficient processors couldn’t just put a 150Wh battery to compete on battery life. Therefore, it is in Apple’s interest to support regulations limiting the size of batteries in consumer electronics devices.
Not all Regulations are Equally Good or Bad for Consumers and Manufacturers.
I’m not saying that regulations generally benefit consumers and companies making consumer products. For example I approve of Apple fighting regulations against end-to-end encryption in the UK. In this case, the regulation is both bad for Apple (with privacy being one of the main selling points for iPhone) and the consumer (reduced privacy).
But my argument is the following:
Instead of generally fighting new regulations, particularly premium device makers can sometimes benefit from regulations, either because their products can absorb the cost much better than lower-cost alternatives or because their technology or market position may enable them to comply with regulations in a way that affects them proportionally less negatively than their competitors.
For example, I believe Apple should support regulations pushing for replaceable wearing parts like batteries. With Apple’s general service network and product design expertise advantage apple will still have the best phones with a user-replaceable batteries. Apple can either fight those regulations, or support them and then also lobby for writing the regulations in a way that gives Apple an advantage, like requiring a service network that can guarantee parts for many years, or programs to enable third party vendors to make safe replacement parts, something that less “premium” competitors would have a harder time implementing.
And why are car companies always fighting new safety regulations? A regulated market is still a market, and the best products will win.
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