FTC Staff Comment to the Hon. Joe L. Heaton Concerning Oklahoma H.B. 1432 to License and Regulate Dry Cleaning, Dying, and Pressing Firms

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04/17/1987 	10:21 	FTC 	DALLAS ReSlon 	**** 	1680 	8 729 7030 	P.04
F ederol TrRd~ CommiKRicm
OW('-r. of du.~ RCKional Dirt!clor
8303 I::lmbrooi. Drive
DaUll:i. TexlI.. 75247
(214) 7li7·7050
April 	17, 	1987
The 	Honorable 	Joe 	L. 	Keaton
Oklahoma 	House 	of 	Representatives
State 	Capitol, 	Room 	502
Oklahoma 	City, 	Oklahoma 	73105
Dear 	Mr. 	Heatons
".,
We 	are 	pleased 	to 	submit 	this 	letter 	in 	response 	to 	your
request 	for 	comments 	on 	youse 	Bill 	1432, 	the 	"State 	Drycleaning
Regulation 	Act 	or 	1987." 	This 	proposed 	le9islation 	provides 	for
the 	licensing 	and 	regulation 	of 	dry 	cleaning, 	dyeing, 	and
pressing 	firms, 	establishes 	the 	State 	Dry 	Cleaners' 	Board, 	and
empowers 	the 	Board 	to 	set 	minimum 	prices 	for 	dry 	cleaning
services 	on 	a 	county-by-county 	basis. 	In 	view of 	the 	likelihood
that 	this 	bill 	will 	increase 	the 	costs 	of 	services 	to 	oonsumers
without 	providing 	countervailing 	benefits, 	we 	recommend 	that 	it
not 	be 	adopted.
The 	Federal 	Trade 	Commission 	Is 	oharged 	with 	preserving
competition 	and 	protecting 	consumers 	from 	deceptive 	and 	unfair
business 	practices. 2 	During 	the 	past 	decade, 	the 	staff 	of 	the
Pederal 	Trade 	Commission 	has 	carried 	out 	studies 	of 	occupational
regulatory 	systems 	in 	jurisdictions 	throughout 	the 	country 	and
has 	analyzed 	the 	effects 	of 	regulations 	on 	competition 	and
consumers. 	Our 	goal 	in 	the 	occupational 	regulatory 	area 	has 	been
to 	identify 	and 	seek 	the 	removal 	of 	those 	restrictions 	that
unoocessarily 	impede 	competition 	and 	increase 	costs.
Few Benefits
We 	oppose 	the 	enactment 	of 	Mouse 	Bill 	1432. 	We 	recognize 	of
course 	that 	Oklahoma 	may 	have 	a 	legitimate 	interest 	in 	regulating
those 	occupations 	for 	which 	the 	lack 	of 	training, 	experience, 	and
professional 	judgment 	can 	result 	in 	serious 	public 	harm. 	We 	are
unaware 	of 	any 	evidence, 	however, 	that 	the 	absence 	of 	regulation
of 	dry 	cleaners 	is 	likely 	to 	threaten ,the 	health 	or 	safety 	of
1
2
The•• 	comments 	represent 	the 	views 	ot 	the 	Dallas 	Regional
Office 	and 	the 	Bureaus 	of 	Competition, 	Consumer 	Protection,
and 	Economic. 	of 	the 	Federal 	Trade 	Commission 	and 	do 	not
necessarily 	represent 	the 	views 	of 	the 	Commission 	itself.
The 	Commission 	has, 	however, 	voted 	to 	authorize 	the 	staff 	to
submit 	them 	to 	you.
Se. 	15 	u.s.c. 	55 	41 	et 	sea.

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The 	Honorable 	Joe 	L. 	Heaton 	-- 	page 	2
consumers. 	Indeed, 	although 	dry 	cleaners 	were 	ot 	one 	time
licensed 	1n 	several 	states, 	including 	Oklahoma,3 	we 	believe 	that
no 	state 	currently 	lioenses 	members 	of 	this 	industry.
. 	It 	it 	is 	true 	that 	no 	compelling 	health 	or 	safety 	interest
justifies 	regulation, 	then 	competition 	in 	the 	marketplace 	is
likely 	to 	insure 	that 	dry 	cleanIng 	firms 	perform 	satisfactory
ser~lces. 	In 	a 	competitive 	market, 	businesses 	that 	provide
qualIty 	goods 	and 	services 	at 	a 	fair 	price 	will 	galn 	a 	reputation
and 	prosper 	over 	those 	that 	do 	not. 	This 	is 	particulary 	true 	in
industries 	like 	dry 	cleaning, 	where 	the 	product 	or 	service 	is
relatively 	inexpensive, 	the 	subject 	of 	frequent 	or 	repeat
purchases, 	and 	consumers 	can 	easily 	evaluate 	the 	qualIty 	of 	the
service 	they 	receive. 	In 	these 	situations, 	there 	are 	particulary
strong, 	market-driven 	incentives 	for 	businesses 	to 	provide
quality 	goods 	and 	services 	and 	to 	deal 	fairly 	with 	the 	public.
Simply 	put, 	consumers 	who 	are 	dissatisfied 	can 	take 	their
business 	elsewhere.
ThUS, 	licensing 	or 	other 	regulation 	should 	not 	b. 	necessary
as 	a 	means 	of 	eliminating 	incomfetent 	dry 	cleaning 	firms 	from 	the
marketplace. 	In 	fact, 	the 	bill 	s 	grandfather 	clause 	would 	ensure
that 	the 	bill 	itself 	would 	have 	no 	impact 	whatever 	on 	firms
currently 	in 	the 	market.
Reduced 	competition 	and 	Increased 	Prices
We 	believe 	that 	House 	Bill 	1432 would 	create 	barriers 	to 	entry
into 	the 	dry 	cleaning 	industry. 	Our 	experience 	tells 	U8 	that 	these
barriers 	are 	likely 	to 	lead 	to 	higher 	prices 	for 	consumers 	and 	a
decrease 	in 	the 	number 	of 	dry 	cleaners 	from 	which 	consumers 	may
choose. 	Economic 	studies 	have 	shown 	that 	licensure 	can 	al.o 	result
In 	reduced 	output 	of 	services, 	limited 	ac~esBibility ot 	those
services 	to 	consumers, 	and 	lower 	quality. 	Lower 	income 	consumers
are 	particularly 	likely 	to 	be 	harmed 	by 	these 	ettorts.
...
3
4
5
Plott, 	Occupational 	Self-Regulation: 	A Case 	Study 	ot 	the
Oklahoma 	Dry 	Cl~anets, 	8 	J. 	L. 	and 	Bcon. 	195 	(1965).
Section 	9 of 	the 	bill.
See, 	e.g., 	M. 	Friedman, 	ca~italism and 	Freedom 	(1962), 	Stigler,
The Th!ory 	of 	Regulation, 	Bell 	J. 	of 	Econ. 	3 	(1971), 	Maurizl,
occupatIonal 	Licensing 	and 	the 	PUblic 	Interest, 	82 	J. 	of 	Pol.
Beon. 	399 	(1974), 	J. 	Phelan, ~ulatlon of 	the 	Television
Repair 	Industr~ in 	Louisiana ana 	CalilornIa, 	A Case 	Study,
Staff 	Report 	to 	the 	PTe 	(1974), 	Benham 	and 	Benham, 	Regulating·
Throu~h the 	Professlon81 	A Perspective 	on 	Information 	Control,
18 	J. 	L. 	and 	Beon. 	421 	(1975), 	Carroll 	and 	Gaston,
oceupational 	Restrictions 	and 	the 	Quality 	of 	Service
.. 	.. 	- 	_... 	• 	I'Irrt.rft 	',f\e"

The 	Honorable 	Joe 	L. 	Heaton 	-- 	page 	3
In 	the 	dental 	field, 	for 	example, 	empirical 	studies 	have
concluded 	that 	licensure 	and 	barriers 	to 	interstate 	mobility
affect 	prices, 	and 	that 	in 	states 	restricting 	the 	number 	ot
practicing 	dentists, 	both 	dental 	service 	prices 	and 	dental
incomes 	are 	higher 	than 	those 	in 	states 	without 	testrictions. 6
Evidence 	on 	the 	etfects 	ot 	licensure 	and 	training 	requirements
for 	another 	consumer 	service 	industry, 	television 	repair, 	Is
presented 	in 	a 	1974 	PTC 	staff 	report, 	Regulation 	of 	the
Television 	Repair 	Industry 	in 	Louisiana 	and 	calIfornia. 	The
report 	found 	that 	the 	price 	of 	television 	repair 	was 	higher 	in
New 	Orleans, 	where 	repairers 	were 	subject 	to 	ttalnlng 	and
licensure 	requirements, 	than 	in 	either 	Washington, 	D.C. 	or 	San
Francisco, 	two markets 	without 	entry 	restrictions. 	Although 	the
quality 	of 	tv 	repair 	service 	was 	not 	considered 	by 	the 	report,
the 	incidence 	of 	fraudulent 	parts 	replacement 	was 	examined. 	Such
fraud 	wa. 	found 	to 	be 	no 	less 	frequent 	in 	New Orleans,
notwithstanding 	the 	restrictions, 	than 	In Washington, 	D.C.7
The 	specific 	licensing 	proposal 	Involved 	here 	seems
particularly 	likely 	to 	restrict 	entry 	into 	the 	dry 	cleaning
business. 	The 	bill 	would 	give 	to 	the 	State 	Dry 	Cleaners' 	Board,
which 	is 	made 	up 	of 	three 	members, 	all 	of 	whc. must 	be 	engaged 	in
the 	cleaning, 	dyeing 	or 	pressing 	business, 	a 	broad 	grant 	of
authority 	to 	impose 	licensing 	standards. 	Although 	operators
currently 	in 	the 	industry 	are 	entitled 	to 	be 	licensed 	by 	virtue
of 	the 	grandfather 	clause, 	the 	bill 	requires 	new 	license
applicants 	Was 	a 	prerequisite 	to 	obtaining 	such 	license, 	to
comply 	with 	suoh 	reasonable 	standards 	as 	may 	be 	deemed 	neoessary
by 	the 	Board 	for 	tbe 	protectIon of 	the 	public 	health 	and
safety 	•••• -8 	(Emphasis 	added.l 	The 	Board 	could 	interpret 	the
-reasonable 	standards w language 	in 	the 	bill 	to 	inclUde 	subjective
examinations, 	or 	to 	require 	an 	undulY high 	passing 	grade 	or 	to
recognize 	only oertain 	types 	of 	training 	5S 	satisfactory 	to merit
6
7
8
See, 	e,g., 	Shephard, 	Licensing 	Restriotions, 	21 	J. 	L. 	and
iCOn. 	187 	(1978), 	Conrad 	and 	Shelton, 	The 	Effecta 	of 	Legal
Constraints 	on 	Dental Care 	Pricee, 	19 	~nqu{ry 	51 	(1982).
Seotion 	4(A) (7) 	of 	the 	bill.
\

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The 	Honorable 	Joe 	L. 	fteaton 	-- 	page 	4
P.e?
licensure. 	Such 	practices 	might 	have 	the 	anticoapetitive 	effect
of 	further 	liaiting 	entry 	into 	the 	dry 	oleaning 	bU81ness. 9
The 	legislation 	would 	also 	restriot 	the 	range 	of 	choices
available 	in 	the 	marketpla~. 	It 	.culd 	allow 	the 	Btate 	Dry
Cleaners' 	Board 	to 	deny 	lioenses 	to 	applioants 	who 	have 	attained
a 	reasonable 	competence 	level 	but 	who 	ftonethelea8 	have 	lower
skill, 	training 	or 	experience 	levels 	than 	others. 	Soae
consumers, 	however, 	.ay 	wish 	to 	use 	dry 	cleaners 	that 	employ 	less
experienced 	personnel 	or 	that 	employ 	individuals 	with 	lea.
specialized 	skills 	or 	training, 	because 	these 	oleaners 	would 	be
expected 	to 	charge 	oorrespondingly 	lower 	fee.. 	Competitive
pressures 	would 	make 	it 	likely 	that 	the 	services 	offered 	by 	these
cleaners 	would 	re.ain 	at 	an 	acceptable 	leyel 	of 	quality.
Price 	Fixing
The 	bill 	may 	also 	harm 	oonsuaers 	by 	e.powering 	the 	State 	Dry
Cleaners' 	Board 	to 	e.tablish 	minim~ pric•• 	for 	cle8ning, 	dyeing,
and 	pressing 	service. 	on 	a 	county-by-county 	basis. 1 	Under 	the
regulatory 	soheme 	of 	the 	bill, 	the 	Boar~ could 	adopt 	price
schedules 	that 	have 	been 	agreed 	upon 	by 	75' 	of 	th. 	ol••nln;,
pressing, 	and 	dyeinq 	firms 	in 	a 	county~ 	thereby 	8etting 	prices 	at
higher 	than 	competitive 	levels. 	A .tu~y of 	the 	now-abolished
Oklahoma Dry Cleaners' 	Board 	(which 	had 	i~entlcal authority)
concluded 	that 	the 	Board's 	price 	fixing 	activities 	had 	the 	effect
ot 	requiring 	Oklaho•• 	consumers 	to pay aor. 	than 	they 	otherwise
would 	for 	those 	.ervieee. ll
Price 	fixing 	aleo 	would 	reduce 	the 	incentive 	for 	fir•• 	to
strive 	for 	effieiency 	beoause 	firms 	no 	longer 	would 	have 	to
oompete 	with 	one 	another 	on 	the 	b •• iB 	of 	price. 	~ven if 	• 	firm
did 	become more 	efficient, 	there 	would 	be 	no 	competitive 	pre •• ure
to 	pass 	on 	the 	cost 	savings 	to 	consumers.
By 	permitting 	the 	Board 	to 	Bet 	prioe., 	this 	bill 	may 	result
in 	many 	of 	the 	evila 	that 	have 	caused 	ptice 	fixing 	by 	private
9
10
11
Until 	California 	abolished 	its 	dry 	oleaners' 	board 	in
December, 	1986, 	the 	board 	gave 	examl~ations to 	license
applicants. 	~as. 	rates 	for 	the 	examinations 	were 	typically
between 	50 	to 	60'. 	The 	Register 	(Santa 	Ana, 	Calif., 	Apr. 	8,
1985), 	at 	A14J 	The 	San 	Diego 	TrIbyne 	(Apr. 	3,1985), 	at 	9-16.
Sections 	16 	and 	17 	of 	the 	bill.
Plott, 	supra 	note 	3, 	at 	222. 	Protessor 	Plott 	was 	unable 	to
quantify 	exactly 	how 	much 	Oklahoaa 	oonsumers 	were 	overcharged
for 	dry 	cleaning 	.ervices.

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The 	Honorable 	Joe 	L. 	Beaton 	-- 	page 	5
agreements 	to 	be 	condemned 	by 	Congress 12 	and .. the 	court.s .13 	Such
pricing 	arrangYlenta 	are 	designed 	to 	eliminate 	an 	important 	form
of 	competition 	an~ have 	long 	been 	held 	to 	be ~ se 	violations
of 	the 	antitrust 	laws. 15 	As 	the 	Supreme 	Court SiTd-rn 	United
Stat§8 	v. 	Sooony-Vacuum oil 	Co., 	price 	ri~ln9 1s 	a 	threat 	to 	the
"central 	nervous 	system of 	the 	eoonomy.-16 	Although 	in 	some
circumstance. 	state 	action 	to 	fix 	prices 	may 	be 	lawfu1 17 , 	price
fixing 	in 	general 	should 	not 	be 	encouraged.
Conclusion
In 	summary, 	we 	believe 	that 	House 	Bill 	1432, 	the 	~tate
Dryeleaning 	Regulation 	Act 	ot 	1987, 	may 	well 	raise 	the 	cost 	of
cleaning 	ser~ices without 	oftering 	oountervailing 	benefits 	to
consumers. 	We 	therefore 	reoommen~ against 	its 	enactment.
We 	appreciate 	this 	opportunity 	to 	present 	our 	views. 	We
have 	referred 	to 	several 	studies 	and 	other 	materials. 	We 	would
be 	hapPY 	to 	supply 	copies 	of 	these 	if 	you 	so desire, 	or 	to
provide 	any 	other 	as.t.tanee.
J:Jm Moseley
eglona1 	Director
Dallas 	Regional 	Offioe
12
13
Section 	1 of 	the 	8her~an Aot, 	15 	U.S.C. 	S1. 	Prloe 	fiXing
alao 	is 	banned 	by 	Section 	5 of 	the 	PTC 	Act, 	15 	O.S.C. 	S 45.
See, 	~, 	Unlte~ States 	v L 	Socony-Vaeuum 011 	Co., 	310 	o.s.
~ 	(~94~), Unltea 	States 	v. 	'renton 	PotterIes 	Co., 	273 	U.S.
392 	(1927) J lfriTted 	States 	v. O
Addyston 	Pip! 	, 	Steel 	Co., 	85 	P'.
271 	(6th Cir. 	1898), 	modified 	as 	to 	decree 	and 	aft'd, 	175
o.S. 	211 	(1899).
14 	United 	States 	v. 	Trenton 	Potteries 	Co., 	273 	U.S. 	392, 	397
(1927). 	.
15 	~,~, Citizen 	Publishing 	Co. 	v, 	united 	States, 	394 	U.S.
131 	(196~-).
16 	310 	u.s. 	150, 	224 	n.59 	(1940).
17 	~S!llrornia 	Retail 	Liguor 	Dealer's 	Association 	v. 	Mldcal
Aluminum, 	Ino., 	445 	O.S. 	97 	(1980).