Article
Deregulation and the Lawyers' Cartel
University of Pennsylvania Journal of International Law
(2021)
Abstract
At one time, the legal profession was largely self-regulating. However, based on the economic notion that increased competition would benefit consumers, jurisdictions have embraced various forms of deregulation, including with respect to advertising, fees, and, most recently, nonlawyer ownership of law firms. Yet, despite reformers’ high expectations, legal markets today largely resemble those of previous decades, and most legal services continue to be delivered by lawyers operating in traditional firms. How to account for this seeming inertia?
We argue that the competition paradigm is theoretically flawed because it fails to fully account for market failures relating to asymmetric information, imperfect information, and negative externalities. In addition, deregulation has different effects based on market segment. Specifically, the costs imposed on sophisticated consumers such as corporate purchasers of legal services differ radically from those imposed on ordinary consumers who use legal services infrequently. Merely increasing the number and types of legal service providers cannot make legal markets more efficient. We illustrate our theoretical account with evidence from the United Kingdom, Europe, and Asia.
To create more efficient legal markets, regulators must tailor solutions by segment. Regulators should seek to minimize negative externalities associated with the delivery of legal services to the corporate segment whereas they should confront information asymmetries that led to the maldistribution of legal services in the consumer segment. Deregulation alone is insufficient and may in fact exacerbate existing market failures.
Keywords
- lawyers,
- market failure,
- competition
Disciplines
- Law and
- Legal Profession
Publication Date
2021
Citation Information
Nuno Garoupa and Milan Markovic. "Deregulation and the Lawyers' Cartel" University of Pennsylvania Journal of International Law Vol. 43 (2021) Available at: http://works.bepress.com/nunogaroupa/192/