Wednesday, March 12, 2014
Aaron S. Edlin, University of California at Berkeley; National Bureau of Economic Research (NBER) and Rebecca Haw, Vanderbilt University School of Law ask Cartels by Another Name: Should Licensed Occupations Face Antitrust Scrutiny?
ABSTRACT: It has been over a hundred years since George Bernard Shaw wrote that "All professions are a conspiracy against the laity." Since then the number of occupations and the percentage of workers subject to occupational licensing has exploded; nearly one third of the U.S. workforce is now licensed, up from five percent in the 1950s. Through occupational licensing boards, states endow cosmetologists, veterinary doctors, medical doctors, or florists, with the authority to decide who may practice their art. It can't surprise when licensing boards comprised of competitors exclude competition and regulate in ways that raise their profit. The result for consumers is higher prices and less choice, as licensing raises wages by 18% and bars competition from unlicensed workers. For African-style hair braiders, the result is either an illicit business or thousands of hours of irrelevant training imposed by a cosmetology board. For lawyers, the result is less competition from tax accountants, paralegals and out of state lawyers.
The great accomplishment of the Sherman Act has been to make cartels per se illegal and relatively scarce. Unless the cartel is managed by a professional licensing board. Most jurisdictions consider such boards, as creations of states, to be exempted from antitrust scrutiny by the state action doctrine, leaving would-be competitors and consumers no recourse against their cartel activity.
We contend that the state action doctrine should not prevent antitrust suits against state licensing boards that are composed of private competitors deputized to regulate their own competition and to outright exclude those who compete with them, often with the threat of criminal sanction. At most, state action should immunize licensing boards from the per se rule and require plaintiffs to prove their case under the rule of reason. We argue that the Fourth Circuit’s recent case upholding an FTC antitrust suit against a licensing board — creating a circuit split and becoming the only circuit to deny state action immunity to a licensing board — is a step in the right direction but not far enough. The Supreme Court should take the split as an opportunity to clarify that when competitors hold the reins to their own competition, they must answer to Senator Sherman.