Challenging Government-Sponsored Private Regulation of Competitors

Government-sponsored private regulation raises concerns about self-interested bias and anti-competitive behavior

It has been a longstanding practice in America for governments to give private entities made up of professionals in an industry the authority to regulate the profession (e.g., state bar associations regulating lawyers and state medical boards regulating doctors). This private sector self-regulation has its advantages: people in an industry know more about it than government does. When that self-regulation is non-coercive, it seems essentially unobjectionable.

But if the government gives private actors coercive power to regulate their own industry, that power isn’t really self-regulation: it’s really some people in an industry regulating other people in that industry. Sometimes these regulatory arrangements involve participants in an industry regulating their competitors. In other cases, existing businesses regulate, and possibly exclude, potential new entrants. When industry has a hand in regulating “itself,” it’s reasonable to be concerned about the potential for self-interested bias and anti-competitive behavior.

Legislators and regulators need to be aware that recent state and federal court decisions show what appears to be an increasing skepticism of private regulatory delegations where such conflicts of interest may exist. Depending on the context, courts might invalidate an entire agency, prevent it from regulating in certain ways, and/or hold individual regulators liable for damages.

This policy brief uses two recent examples—the Mississippi Board of Pharmacy’s regulation of pharmacy benefit managers and the North Carolina Board of Dental Examiners’ exclusion of non-dentist teeth whiteners—to explain the various legal doctrines used to challenge private regulatory delegations: state and federal nondelegation doctrines, the U.S. Constitution’s Due Process Clause, and federal antitrust law.

Alexander Volokh is Associate Professor of Law

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