Government Licensing = Incumbent Protection







  1. mahtso:

    With respect to liquor licenses: Arizona law has a provision related to the convenience of the new store/bar; I have been told that it is intended to mean convenience for the customers and more stores is better (i.e., the intent was to make it easy to get to a licensed establishment). The reason is that when prohibition ended all the business went to illegal operations and the plan was to put them out of business by making it convenient for people to go to a licensed store.

    You are spot on as to licenses being a method to restrict competition.

  2. ben:

    The endless evil of government. Breathtaking.

  3. Lorenzo:

    Posner discusses somewhere the medieval common law requirement that someone planning to build a new flour-mill had to essentially buy customers from existing mills. In a situation where capital was very scarce, it was a way of discouraging wasteful investment of capital and protecting those who had invested capital.

    Note, however, it was a direction transaction between those affected. A straightforward buy-and-sell with an available mediator (the judge: which were rather more common in medieval society).

    Modern licensing laws which regulate entry numbers (rather than merely specifying standards) lack such a "bottom line". What is supposed to make transactions easier (deal with one centralising body rather than separate negotiations with local provides) tends to lack any clear bottom line.

  4. Lorenzo:

    The should be "who were more common" and "local providers", but you get my drift.

  5. Rod Smith:

    Excellent article - consistently outstanding posts from this blog.

  6. bill steigerwald:

    According to Pa. state Public Utility Law, set up in the hideous heyday of the New Deal and, of course, enforced faithfully to this day, regulations here require any new taxi company to get the OK of the existing one or two cab companies who were given monopoly or near-monopoly privileges in Pgh. and Philly etc. during the mid 1930s; the largest company, which controls probably 95 percent of the taxi biz in Pittsburgh, is Yellow Cab. Yellow Cab is notorious for lousy service, crummy cabs and racism; most of its cabs go back and forth all days from Downtown to the Pgh airport, which costs about $35 a trip for 20 miles. Poor people, with their need to get back and forth to grocery stores and doctors, are the natural clientele for cabs. But in Pittsburgh (and elsewhere), the poor or carless are woefully underserved -- which is why Pgh has a healthy, free-market solution to taxi service that is completely illegal and unlicensed and unregulated -- jitneys. Think August Wilson, who based his play "Jitney" on his hometown of Pittsburgh's thriving and valuable jitney industry. This black market (literally) service is cheaper than Yellow Cab and it serves the poorer (mainly black) parts of town from which if you called a Yellow Cab because you were pregnant and your water broke, your child would be in pe-school before a taxi showed up. About 14 years ago a black guy -- i won't call him an entrepreneur because though he was a jitney driver he was using a bunch of government grant money -- tried to start a new legal cab company to serve primarily black neighborhoods; Yellow Cab, as allowed by law because the new company was a threat to its business, tortured him; YC, using the PUC regs, forced him to prove that there was a need for his two or three cab company. The guy had to get lawyers, waste time, etc., in an administrative proceeding that took almost a year, if I recall. The PUC law clearly was designed to protect existing monopoly providers, and it worked as intended; the new guy, miraculously, but probably because he was both tiny and black, got the PUC's OK -- but he could only serve two black wards and could only drop off people at the airport, not pick up anyone there. The guy lasted maybe a year -- until his government money ran out, i suspect, and disappeared. The PUC law here is a living relic of the fuedal New Deal mentality that competition is confusing and not good for consumers; it is also a text book case of how regulators are captured by the people/industry/occupation they are supposed to be regulating; Yellow Cabs many special state-provided privileges and sins against consumers (high costs, bad service, which date back to the mid 1930s) -- continue to this day in Pittsburgh. The Institute for Justice, god bless it, broke up a similar PUC-taxi racket in Denver and won the OK for new cab companies to get into the biz. But it's a city by city or state by state set up. So backwater places like Pa., where in 2009 liquor and wine can still only be bought in "state stores" (state govt-owned and operated outlets) not supermarkets, will continue for eternity to use bad, stupid laws to privilege pet monopolies while consumers and entrepreneurs quietly get screwed.

  7. Larry Poe:

    I think you and your readers will appreciate a little tale about government I lifted from a blog by an English sci-fi writer with a distinctly libertarian bent, Neal Asher (blog at









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