The Economics of Occupational Licensing: Applying Antitrust Economics to Distinguish Between Beneficial and Anticompetitive Professional Licenses

Licensing laws can both serve the public by protecting consumers and harm competition by erecting unnecessary barriers to entry, but what has been missing from the legal analysis is that licensing laws are best understood as an economic strategy. The law currently treats licensing as a political decision that is best left to legislatures, but by applying an economic framework, the precise mechanism by which licenses are used can be better understood and analyzed. Economics helped to guide antitrust law to the core anticompetitive activities by focusing the analysis on market conditions and efficiency. Courts have been better able to combat cartels once they stopped looking for letters expressing an intent to collude and started looking at the elasticity of demand and market concentration. The same transition is necessary in approaching licensing laws. Traditionally courts have focused on whether a given licensing requirement is rationally connected to the skills necessary to perform the occupation being regulated. Economics can explain precisely how licenses operate as an anticompetitive mechanism, why licenses facilitate consumer welfare, and when each of these effects will be more pronounced. With greater emphasis on the market conditions surrounding licenses, it will become easier to know what kind of evidence is relevant to assessing the costs and benefits of a given licensing regulation.

Neil Katsuyama

Southern California Interdisciplinary Law Journal

2010

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