Controlling Unjustified, Anticompetitive State and Local Regulation: Where is Attorney General “Waldo”?
| Published date | 01 December 2011 |
| Author | Peter C. Carstensen |
| DOI | 10.1177/0003603X1105600404 |
| Date | 01 December 2011 |
| Subject Matter | Article |
Controlling unjustified,
anticompetitive state and local regulation:
Where is attorney general “Waldo”?
BY PETER C. CARSTENSEN*
State and local regulations frequently impose unnecessary
anticompetitive restrictions on the market. The challenge is to
develop the legal and institutional strategies that can constrain
regulation more closely to legitimate public interest goals. This article
documents the range of anticompetitive interventions ranging from
statutes through agency regulation and local ordinances. The theory
of public choice and special interest influence in the legislative and
administrative processes explain these observations. Second, the
article argues that state attorneys general ought to be in the forefront
of challenging such regulations, but the record reveals that often
attorneys general defend such regulations. Third, the article identifies
statutory, doctrinal, and institutional innovations that could ensure
more focused and consistent evaluation of such anticompetitive
regulations. Finally, there is acknowledgment that it may be difficult
for attorneys general to become the advocates for competition against
unnecessary regulation that the public interest requires.
KEY WORDS: competition policy, economic regulation, antitrust exemptions,
state attorneys general.
* George H. Young-Bascom Professor of Law, University of Wisconsin
Law School.
AUTHOR’S NOTE: I was counsel for the defendants in County of Milwaukee v.
Williams, 2007 WI 69, and assisted in preparing an amicus brief in support of the
plaintiff in Eichenseer v. Madison-Dane County Tavern League, 2008 WI 38.
Both of these cases are discussed infra.
© 2011 by Federal Legal Publications, Inc.
772 : T H E A N T I T R U S T B U L L E T I N : Vol. 56, No. 4/Winter 2011
I.
INTRODUCTION
A major source of both dynamic and static inefficiency in our econ-
omy are unnecessary, anticompetitive statutes, ordinances, and regu-
lations imposed by state and local governments, including local
regulatory authorities. These regulations very often serve only to pro-
tect businesses from the rigors of competition. Conspicuous statutory
examples exist in the distribution of beer, wine, and liquor that pre-
clude producers from dealing directly and efficiently with retailers or
customers.1 The tobacco industry settled state damage claims by
promises of massive future payments in return for the states under-
A much earlier version of this article was presented at the Centennial Symposium of
the National Association of Attorneys General, St. Louis, Mo. (Oct. 9, 2007), cele-
brating 100 years of cooperation among state attorneys general in enforcing antitrust
law. Although it is fair to say that many in the audience did not agree with my views,
their comments including illustrations of how many state attorneys general have in
fact promoted competition were very helpful in my revision and expansion of this
article. In addition, the members of the antitrust law and economics seminar at the
University of Wisconsin Law School also had a number of very helpful comments in
response to a subsequent revision of this article. I alone, however, remain responsible
for any errors.
1
See generally WIS STAT. ch. 125 (2009–10), provisions regulating the dis-
tribution and sale of alcoholic beverages including wine. Id. § 125.53 (winery
permit authorizes only producing wine), § 125.54 (distribution requires
wholesaling permit). See also Joel Dresang, Wisconsin Wineries Using Co-Ops to
Avoid Wholesalers: New Law Says All Winemakers Must Go Through Wholesaler,
MILWAUKEE JOURNAL SENTINEL, Sept. 12, 2008, available at http://www.jsonline
.com/business/32540844.html. Basically, wineries can sell to retailers only
through a wholesaler, and so they must either join a cooperative for small
wineries or risk having no distribution.
In 2011, the legislature decided that all beer brewers must sell through
wholesalers even if the brewer produces a very modest quantity. The result-
ing restrictions will be codified in various parts of WIS. STAT. ch. 125. The
amendments are available at http://www.tyranena.com/Motion414.pdf. The
statutes already rigidly control the ability of wholesalers to engage in intra-
brand competition by requiring exclusive territories. WIS. STAT. § 125.34. For a
critical analysis of the merits of territorial restraints in the context of beer dis-
tribution, see Peter C. Carstensen & Richard Dahlson, Vertical Restraints in
Beer Distribution: A Study of the Business and Legal Justifications for Restricting
Competition, 1986 WIS. L. REV. 1 (1986).
A N T I C O M P E T I T I V E R E G U L AT I O N : 773
taking to exclude new competition and protect the monopoly pricing
of the incumbent companies.2 Local regulations of taxis, airports, hos-
pitals, and many other businesses often have little or no legitimate
public interest function, but they serve to protect incumbents from the
threat of competition.3 State, regional, and local regulatory authorities
also often use their power in ways that unnecessarily restrict competi-
tion, protecting either incumbents or their own commercial activities.
Unchecked, these kinds of statutes, ordinances, and regulations
undermine the welfare of the general public both by facilitating
exploitation and by deterring entry by more efficient or innovative
alternatives. These legislative and administrative impulses must be
constrained by a combination of doctrines and institutions.4
State attorneys general (AGs) as a group have a long history of
enforcing antitrust laws, state and federal, to protect their constituents
from any number of private conspiracies, monopolies and unlawful
mergers that would otherwise have imposed or did impose excessive
burdens on the public.5 In periods of lax enforcement at the national
2
See Freedom Holdings, Inc. v. Cuomo, 624 F.3d 38, 42 (2nd Cir. 2010).
The states enacted various statutes as part of the settlement with the major
cigarette manufacturers that explicitly imposed costs on nondefendant manu-
facturers for the express purpose of protecting the market shares of the defen-
dants. Id. at 43–45.
Cigarettes are very dangerous to consumers, and there is a clear justi-
fication for restricting access to the product. In contrast, the statutory burdens
imposed by the tobacco settlements were designed to protect the position of
the dominant companies that had engaged in the most despicable kinds of
fraud and deception for an extended period of time to reap monopoly profits
in order to pay the damage claims of the states. Thus, the states became active
conspirators with dominant firms. See infra text accompanying notes 58–60 for
further analysis of this particular phenomenon.
3
See infra part II for discussion of these and other examples.
4
One is almost tempted to urge the revival of substantive due process
as a means to control regulatory excesses. See Alan G. Meese, Standard Oil as
Lochner’s Trojan Horse, 85 S. CAL. L. REV. (forthcoming 2012).
5
See, e.g., Hartford Fire Ins. Co. v. California, 509 U.S. 764 (1993); Cali-
fornia v. Am. Stores Co., 495 U.S. 271 (1990); see generally Nat’l Ass’n of Attor-
neys General State Antitrust Litigation Data Base, available at http://app3
.naag.org/antitrust/search/ for more examples.
774 : T H E A N T I T R U S T B U L L E T I N : Vol. 56, No. 4/Winter 2011
level, the states through their AGs, in a bipartisan tradition, have pro-
tected the broader national public interest in competition. Indeed, in
2007, the state AGs celebrated the 100th anniversary of their com-
bined efforts to promote competition in the public interest.6
Hence, these same AGs ought to be the first line of defense against
anticompetitive local and state regulation. But, in fact, they too often
ignore or even defend these restraints even though the harm done to
the competitive process can be as serious as any price fixing cartel or
abusive monopoly. Such restraints result in increased costs to the resi-
dents of states as well as restricting the dynamics of many markets by
inhibiting entry and innovation. The remedy is for “AG Waldo” to
police, directly or indirectly, his or her own backyard to protect the
public from unnecessary anticompetitive regulations imposed by
state and local government. But, it must be acknowledged, the AGs
need better doctrinal tools to ensure effective review of anticompeti-
tive regulations. Further, they need to have the incentives to pursue
such claims or find ways to empower others to do so.
At the outset, it is important to acknowledge that most regula-
tions have some effect on the costs of doing business. This does not
mean that regulation is in general anticompetitive. It is often essential
to constitute and define how markets should work in order to serve a
variety of public interests. Hence, the challenge is to ensure that there
is a more complete recognition of the competitive consequences that
can flow from regulations and some criteria to permit a more critical
review of those regulations that have significant adverse effects on
competition.
Part II of this article presents the evidence that there is a serious
problem of unjustified, anticompetitive local and state regulation and
describes the theoretical model, based on public choice theory, that
explains why such effects are predictable. Part III identifies more
directly the visible role of state AGs in facilitating such regulation as
well as recognizing examples in which AGs acted in the public inter-
est and challenged such restraints, not...
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