Firms typically oppose the imposition of new cost-raising regulations on their industry. But once costly regulations are in place, regulated firms sometimes benefit from the continuance of the rules because they raise the cost of entry into the industry. Thus, Manischewitz isn’t sad that it’s hard to comply with kosher rules:
Copeland estimates that kosher laws add about 20 to 30 percent to the cost of production. That might sound bad for business. In fact, the owners of Manischewitz told me that kosher law could be the best thing they have going for them.
Alain Bankier, co-president of Manischewitz, said that the capital investment in the company’s state-of-the-art matzo machinery poses a huge barrier to entry for potential competitors.
So rather than being bad for business, all those kosher rules mean Manischewitz won’t have much competition.
Another possible issue here is regulatory capture. The market for kosher-certifying rabbis and matzoh manufacturers isn’t exactly a textbook case of many buyers, many sellers, undifferentiated products, and free entry and exit. Under these circumstances, the relationship between regulators and producers can grow dangerously cozy as seen in various kosher meat scandals.