FTC Staff Comments Before the South Carolina Legislative Audit Council Concerning Restrictive or Anticompetitive Effects of State Agency Statutes

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COMMISSION AUTHORIZEDUNITED STATES OF AMERICA
FEDERAL TRADE COMMISSION
WASHINGTON, D.C. 20580
BUREAU OF COMPETITION
November 	7, 	1989
George 	L. 	Schroeder
Director
Legislative 	Audit 	Council
State 	of 	South 	Carolina
620 	NCNB 	Tower
Columbia, 	South 	Carolina 	29201
Dear Mr. 	Schroeder:
The 	staff 	of 	the 	Federal 	Trade 	Commission1 is 	pleased 	to
respond 	to 	the 	invitation 	of 	the 	Legislative 	Audit 	Council 	of 	the
State 	of 	South 	Carolina 	to 	comment 	on 	the 	possible 	restrictive 	or
anticompetitive 	effects 	of 	the 	statutes 	and 	regulations 	governing
eight 	state 	agencies. 2 The 	analysis 	below 	discusses 	provisions
governing 	three 	of 	the 	agencies 	that 	may 	have 	anticompetitive
effects 	and 	thereby 	injure 	consumers. 	Those 	agencies 	are 	the
Commissioners 	of 	Pilotage 	for 	the 	Port 	of 	Charleston, 	the
Auctioneers' 	Commission, 	and 	the 	Board 	of 	Registration 	for
Foresters. 	Our 	comments 	are 	largely 	confined 	to 	the 	provisions
that 	your 	letter 	identifies 	as 	raising 	possible 	competitive
concerns.
Although 	the 	statutes 	and 	regulations 	of 	the 	five 	agencies
on which we 	do 	not 	comment 	may 	also 	raise 	significant 	competition
issues, 	we 	do 	not 	have 	the 	expertise 	to 	offer 	an 	opinion 	on 	their
merits. 	You 	may 	wish, 	however, 	to 	consider 	these 	provisions 	in
light 	of 	the 	analysis 	of 	the 	published 	research 	on 	the 	effects 	of
occupational 	licensing 	that 	we 	submitted 	to 	you 	on 	January 	23,
1989.
I. 	Interest 	and 	Experience 	of 	the 	Staff 	of 	the 	Federal 	Trade
Commission
The 	Federal 	Trade 	Commission 	is 	charged 	by 	statute 	with
preventing 	unfair 	methods 	of 	competition 	and 	unfair 	or 	deceptive
practices 	in 	or 	affecting 	commerce. 	15 	U.S.C. 	§ 	45. 	Under 	this
1 	These 	comments 	are 	the 	views 	of 	the 	staff 	of 	the 	Federal 	Trade
Commission's 	Bureau 	of 	Competition. 	They 	are 	not 	necessarily 	the
views 	of 	the 	Commission 	itself 	or 	any 	individual 	Commissioner.
2 	The 	agencies 	regulate 	harbor 	pilots, 	polygraph 	examiners,
private 	detectives 	and 	private 	security 	agencies, 	foresters,
professional 	counselors 	and 	marital 	and 	family 	therapists,
auctioneers, 	and 	hearing 	aid 	dealers 	and 	fitters. 	Another 	agency
promotes 	economic 	development 	in 	South 	Carolina.

George 	L. 	Schroeder
Page 	2
statutory 	mandate, 	the 	Commission 	seeks 	to 	identify 	restrictions
that 	impede 	competition 	or 	increase 	prices 	without 	offering
countervailing 	benefits 	to 	consumers. 	The 	Commission 	has 	sought
to 	improve 	consumer 	access 	to 	professional 	services 	by 	initiating
antitrust 	enforcement 	proceedings. 3 In 	addition, 	the'staff 	of
the 	Commission 	has 	studied various 	facets 	of 	the 	regulation 	of
licensed 	professions,4 	and 	has 	submitted 	comments 	to 	state
legislatures 	and 	administrative 	agencies, 	including 	the
Legislative 	Audit 	Council 	of 	South 	Carolina,5 	on 	various 	issues
of 	professional 	licensing 	and 	regulation. 6
3 	See, 	e.g., 	Massachusetts 	Board 	of 	Registration 	in 	Optometry,
110 	F.T.C. 	549 	(1988); 	Rhode 	Island 	Board 	of 	Accountancy, 	107
F.T.C. 	293 	(1986) (consent 	order); 	Louisiana 	State 	Board 	of
Dentistry, 	106 	F.T.C. 	65 	(1985) 	(consent 	order); 	American 	Medical
Ass'n, 	94 	F.T.C. 	701 	(1979), 	aff'd, 	638 	F.2d 	443 	(2d 	Cir. 	1980),
aff'd 	memo 	by 	an 	equally 	divided 	court, 	455 	U.S. 	676 	(1982);
American 	Dental 	Ass'n, 	94 	F.T.C. 	403 	(1979), 	modified, 	100 	F.T.C.
448 	(1982), 	101 	F.T.C. 	34 	(1983) 	(consent 	order).
4 	See, 	e.g., 	Cleveland 	Regional 	Office 	and 	Bureau 	of 	Economics,
Federal 	Trade 	Commission, 	Improving 	Consumer 	Access 	to 	Legal
Services: 	The 	Case 	for 	Removing 	Restrictions 	on 	Truthful
Advertising 	(1984); 	Bureaus 	of 	Consumer 	Protection 	and 	Economics,
Federal 	Trade 	Commission, 	A Comparative 	Analysis 	of Cosmetic 	Lens
Fitting 	by Ophthalmologists, 	Optometrists, 	and Opticians 	(1983);
Bureau 	of 	Economics, 	Federal 	Trade 	Commission, 	Effects 	of
Restrictions 	on 	Advertising 	and 	Commercial 	Practice 	in 	the
Professions: 	The 	Case 	of Optometry 	(1980).
5 	~l:!_~ __s1:.c~Jf 	of 	the 	G_9-~iss.i"Qn h~l? provided 	comments 	to 	the
Legislative -Auort--Council 	on 	six 	prior 	occasions. 	In comments
fiIEid---from--Fehr,iiiry 19a7through.March 	1989, 	the 	lS_t_a.ff 	commented
on 	s-taEute-s-and -regulat19Ils 	gov~rning the 	state I s 	Board 	of---
optor.[E1_~fY~:~~9_Qp-tJcianry, ~oard of 	Podia~,!:y E~a..m~:r.H:~.rs '~' Board 	of
O§~~tj,9.I.lCl1.Therapy-Examiners ,'B~q~~d'-of- Speech 	ami 	AuaTolo'~'
Examiners, 	Board 	9±J?l?ycho1.9.9Y 	Examiners, 	Public -Service
commIssIon, 	:EIce'iising 	Board 	for 	Contractors, 	Residential 	Home
Building 	Commission, 	Real 	Estate 	Commission, 	Board 	of
Certification 	for 	Environmental 	System 	Operators, 	Board 	of
Registration 	for 	Professional 	Engineers 	and 	Land 	Surveyors,
Manufactured 	Housing 	Board, 	Board 	of 	Registration 	for 	Landscape
Architecture, 	Board 	of 	Architectural 	Examiners, 	Board 	of 	Funeral
Service, 	Board 	of 	Examiners 	for 	Registered 	Sanitarians, 	Board 	of
Social 	Work 	Registration, 	and 	Building Code 	Council.
6 	See, 	e.g., 	Comments 	of 	Staff 	of 	Federal 	Trade 	Commission 	on
Florida 	Bar 	Rules 	of 	Professional 	Conduct 	(July 	17, 	1989);
Comments 	of 	Federal 	Trade 	Commission 	Staff 	on 	Rules 	of 	Idaho
State 	Board 	of 	Chiropractic 	Physicians 	(December 	7, 	1987).

George 	L. 	Schroeder
Page 	3
II. 	Analysis 	of 	Statutes 	and 	Regulations
A. 	Commissioners 	of 	Pilotage 	for 	the 	Port 	of 	Charleston
The 	statute 	governing 	the 	Commission 	of 	Pilotage 	for 	the
Port 	of 	Charleston 	contains 	a 	number 	of .Efovisions 	that 	restrict
entry 	into 	the 	business 	of 	pilotage. 	The 	statute 	limits 	the
number 	of 	pilots 	in 	the 	port 	of 	Charleston 	to 	fifteen. 7 To 	be
eligible 	for 	a 	pilot's 	license, 	an 	applicant 	must 	be 	recommended
by 	a 	majority 	of 	the 	pilots 	in 	the 	port 	of 	Charleston. a 	In
addition, 	all 	boats 	commissioned 	and 	used 	for 	pilotage 	in
Charleston, 	must 	be 	"owned 	and 	manned 	by 	the 	group 	of 	associated
pilots 	then 	currently 	licensed. ,,9 	Licensed 	pilots 	are 	prohibited
from 	engaging 	in 	any 	business 	other 	than 	pilotage lO and 	from
discontinuing 	pilotage 	services, 	other 	than 	for 	reasons 	of
health, 	without 	the 	authorization 	of 	the 	commissioners 	of
pilotage. 11
The 	statute 	also 	contains 	prov1s1ons 	governing 	the 	price 	of
pilotage 	services. 	It 	authorizes 	the 	commissioners 	of 	pilotage
to 	fix 	the 	rates 	and 	fees 	for 	pilotage 	services. 12 	The 	statute
requires 	every 	vessel 	entering 	the 	harbor 	pilotage 	area 	to 	accept
pilotage 	services 	and 	enforces 	this 	requirement 	by mandating 	that
a 	vessel 	pay 	for 	the 	services 	even 	if 	it 	declines 	the 	use 	of 	a
pilot. 13 Finally, 	while 	the 	statute 	requires 	vessels 	to 	use
licensed 	pilots, 	it 	limits 	liability 	for 	damages 	caused 	bl
pilots' 	"errors, 	omissions, 	fault, 	or 	neglect" 	to 	$5000. 1
Although we 	do 	not 	have 	expertise 	in 	harbor 	pilotage, 	and
thus 	cannot 	predict 	with 	certitude 	the 	effects 	of 	the
restrictions 	outlined 	above, 	the 	effects 	of 	price 	and 	entry
7 	S.C. 	Code 	Ann. 	§ 	54-15-130. 	See 	also 	S.C. 	Code 	Ann. 	§ 	54-15-
120. 	Similar 	restrictions 	are 	imposed 	in 	other 	ports 	as 	well.
See 	S.C. 	Code 	Ann. 	§ 	54-15-130. 	For 	convenience, 	we 	address
solely 	the 	provisions 	concerning 	the 	Port 	of 	Charleston.
a
9
10
11
12
13
14
S.C. 	Code 	Ann. 	§ 	54-15-60.
S.C. 	Code 	Ann. 	§ 	54-15-180.
S.C. 	Code 	Ann. 	§ 	54-15-200.
S.C. 	Code 	Ann. 	§ 	54-15-210.
S.C. 	Code 	Ann. 	§ 	54-15-290.
S.C. 	Code 	Ann. 	§ 	54-15-270.
S.C. 	Code 	Ann. 	§ 	54-15-350.

George 	L. 	Schroeder
Page 	4
regulations 	for 	harbor 	pilotage 	are 	likely 	to 	be 	similar 	to 	those
in 	other 	markets. 	It 	should 	be 	emphasized 	that 	our 	analysis 	is
confined 	to 	the 	effects 	of 	price 	and 	entry 	regulations 	and 	does
not 	address 	regulations 	designed 	to 	enhance 	navigational 	safety.
We 	recognize 	that 	safety 	regulation 	in 	the 	maritime 	context 	is
necessary 	to 	protect 	not 	only 	seafaring vessels 	but 	also 	the
public 	at 	large, 	which 	can 	suffer 	great 	harm 	from 	the 	discharge
of 	various 	kinds 	of 	cargo 	in 	navigational 	mishaps.
Restrictions 	on 	entry 	tend 	to 	increase 	the 	price 	of 	the
goods 	or 	services 	provided 	by 	a 	line 	of 	business. 15 	As 	a 	general
matter, 	markets 	are 	better 	equipped 	than 	regulators 	to 	determine
the 	appropriate 	level 	of 	supply 	of 	a 	service, 	by 	adjusting 	the
supply 	for 	any 	service 	in 	response 	to 	changes 	in 	demand. 	Thus,
an 	increase 	in 	the 	use 	of 	Charleston 	harbor, 	and 	hence 	in 	the
demand 	for 	pilotage 	services, 	would 	tend 	to 	lead 	to 	an 	increase
in 	the 	price 	of 	pilotage 	services. 	Such 	an 	increase 	would, 	in
turn, 	attract 	entry 	into 	the 	pilotage 	business 	and 	lead 	to 	the
stabilization 	of 	the 	price 	at 	the 	competitive 	level. 	Conversely,
a 	decline 	in 	the 	demand 	for 	pilotage 	services 	would 	tend 	to
result 	in 	a 	decrease 	in 	the 	price 	for 	the 	service 	and 	the 	exit 	of
some 	pilots 	from 	the 	business, 	with 	the 	price 	again 	stabilizing
at 	the 'competitive 	level. 16 	Absent 	regulatory 	restrictions 	or
other 	barriers 	or 	impediments 	to 	entry,17 	markets 	tend 	to 	adjust
supply 	quickly 	to 	meet 	demand 	for 	a 	service.
When 	the 	number 	of 	suppliers 	is 	fixed 	by 	statute, 	as 	it 	is
for 	pilots 	in 	South 	Carolina, 	the 	opportunity 	for 	new 	suppliers
to 	enter 	into 	the 	market 	is 	curtailed. 	As 	a 	result, 	incumbents
may 	charge 	higher 	prices 	than 	would 	prevail 	in 	a 	competitive
15 	Please 	refer 	to 	Part 	II 	of 	our 	January 	23, 	1989, 	letter 	to
you 	for 	a 	discussion 	of 	the 	effects 	of, entry 	restrictions 	imposed
through 	licensing 	on 	the 	price 	of 	professional 	services.
16 	The 	increase 	or 	decline 	in 	demand 	referred 	to 	in 	the 	text
must 	be 	more 	than 	temporary 	to 	have 	these 	effects. 	Obviously,
all 	businesses 	will 	have 	day-to-day 	or month-to-month
fluctuations 	in 	demand 	for 	their 	services.
17 	Barriers 	to 	entry 	are 	long-run 	costs 	that 	must 	be 	incurred 	by
entrants 	into 	a 	business 	but 	were 	not 	incurred 	by 	incumbent
firms. 	Environmental 	regulations, 	for 	example, 	can 	be 	entry
barriers. 	Impediments 	to 	entry 	are 	conditions 	that 	necessarily
delay 	entry 	into 	a 	market 	for 	a 	significant 	period, 	such 	as 	when
new 	entry 	is 	possible 	only 	through 	the 	construction 	of 	a 	plant
that 	cannot 	be 	completed 	for 	a 	number 	of 	years. 	See 	B.F.
Goodrich 	Co., 	110 	F.T.C. 	207, 	295-97 	(1988).

George 	L. 	Schroeder
Page 	5
~arket.18 	The 	statute 	further 	deters 	the 	entry 	of 	suppliers 	who
are 	likely 	to 	be 	vigorous 	competitors 	by 	conditioning 	new 	entry,
when 	the 	number 	of 	licensed 	pilots 	falls 	below 	fifteen, 	on 	the
entrant's 	endorsement 	by 	a 	majority 	of 	incumbent 	license 	owners.
Given 	an 	opportunity 	to 	veto 	new 	entry, 	incumbents 	may 	prevent
particularly 	aggressive 	competitors 	or 	innovative 	and more
efficient 	suppliers 	from 	entering 	the 	market. 	By 	empowering
incumbents 	to 	select 	entrants, 	the 	law 	encourages 	pilots 	to 	act
as 	collaborators, 	not 	competitors.
The 	statute 	also 	limits 	the 	business 	practices 	of 	pilots 	in
a 	manner 	that 	may 	reduce 	the 	efficiency 	of 	service. 	Thus, 	the
requirement 	that 	all 	boats 	used 	for 	pilotage 	in 	Charleston 	be
"owned 	and 	manned 	by 	the 	group 	of 	associated 	pilots 	then
currently 	licensed," 	coupled 	with 	the 	prohibition on 	license
holders' 	engaging 	in 	businesses 	other 	than 	pilotage, 	prevents
potentially 	beneficial 	business 	arrangements. 	For 	example, 	the
restrictions 	prevent 	shipping 	firms 	that 	use 	Charleston 	harbor
from 	operating 	pilotage 	services 	for 	their 	own 	vessels 	and 	may
prevent 	efficient 	providers 	of 	pilotage 	services 	from
simultaneously 	operating 	more 	than 	one 	pilot 	boat. 19 Together,
these 	restrictions 	tend 	to 	encourage 	incumbent 	license 	holders 	to
operate 	as 	a 	close-knit 	fraternity 	of 	pilots, 	rather 	than 	as
businesses 	that 	compete 	vigorously 	in 	whatever 	spheres 	offer 	an
opportunity 	for 	profit. 20
South 	Carolina 	law 	also 	provides 	for 	price 	regulation 	of
pilotage 	services. 	Although 	price 	regulation 	may 	have 	originated
as 	a 	means 	to 	prevent 	public 	utilities, 	which were 	thought 	to 	be
18 	A study 	by 	the 	Commission's 	Bureau 	of 	Economics 	concerning
restrictions 	on 	entry 	into 	the 	taxi 	market, 	which 	appear 	to 	be
analogous 	to 	regulations 	restricting 	entry 	into 	the 	pilotage
market, 	is 	particularly 	instructive. 	Among 	other 	things, 	the
study 	concluded 	that 	entry 	restrictions 	enable 	incumbent 	firms 	to
exercise 	market 	power. 	See 	M. 	Frankena 	& P. 	Pautler, 	An 	Economic
Analysis 	of 	Taxicab 	Regulation 	(FTC 	Bureau 	of 	Economics 	1984).
19 	If 	each 	license 	holder 	must 	both own 	and 	operate 	his 	boat, 	he
is 	unlikely 	to 	operate 	more 	than 	one 	boat. 	If, 	alternatively,
the 	statute 	mandates 	that 	boats 	be 	owned 	and 	operated
collectively 	by 	the 	group 	of 	licensed 	pilots, 	it 	would, 	at 	a
minimum, 	reduce 	competition 	among 	pilots.
20 	The 	restriction 	against 	discontinuing 	pilotage 	other 	than 	for
reasons 	of 	health, 	if 	it 	is 	designed 	to 	insure 	that 	enough 	pilots
are 	available 	at 	any 	time, 	might 	become 	unnecessary 	if 	entry
restrictions 	were 	removed 	and 	the 	market 	were 	allowed 	to
determine 	the 	number 	of 	pilots 	in 	business.

George 	L. 	Schroeder
Page 	6
natural 	monopolies, 	from 	exploiting 	their 	market 	power, 21 	some
scholarly 	studies 	have 	questioned 	whether 	public 	utility
regulation 	results 	in 	lower 	prices 	than 	would 	prevail 	without
rate 	regulation. 22 W~atever 	the 	effects 	of 	price 	regulation 	on
natural 	monopolies, 	in 	otherwise 	competitive 	markets 	consumers
typically 	benefit 	from 	vigorous 	competition 	among 	suppliers 	that
is 	unimpeded 	by 	rate 	regulation. 23
There 	is 	reason 	to 	believe 	that 	South 	Carolina's 	law may 	not
result 	in 	the 	lowest 	prices 	possible 	for 	the 	quality 	of 	services
pilotage 	customers 	prefer, 	in 	spite 	of 	the 	provision 	for 	price
regulation. 24 As 	an 	initial 	matter, 	it 	appears 	that 	the 	pilots'
association may 	exercise 	some 	influence 	over 	the 	Commission 	of
Pilotage. 	Although 	the 	statute 	directs 	the 	Commission 	of
Pilotage 	to 	establish 	price 	regulations, 	the 	regulations 	do 	not
set 	forth 	price 	levels 	or 	procedures 	for 	determining 	them.
Instead, 	the 	Commission's 	regulations 	authorize 	the 	pilots'
association 	to 	adopt 	a 	"Financial 	Agreement 	embodying 	such
details 	with 	respect 	to 	monetary 	matters 	as 	they 	feel 	are
necessary 	to 	fairly 	provide 	for 	and 	protect 	the 	interests 	of
present 	and 	future 	members 	as 	well 	as 	retired members."~ 	Even
if 	incumbent 	pilots 	do 	not 	exercise 	influence 	over 	the
Commission's 	decisions, 	incumbent 	pilots 	may 	lack 	the 	incentive
to 	innovate 	and 	increase 	the 	efficiency 	of 	their 	service 	in 	the
absence 	of 	a 	market-based 	incentive, 	such 	as 	the 	opportunity 	to
capture 	market 	share 	by 	offering 	a 	service 	at 	a 	lower 	price.
21 	See 	S. 	Breyer, 	Regulation 	and 	Its 	Reform 	15-18 	(1984);
Jarrell, 	The 	Demand 	for 	State 	Regulation 	of 	the 	Electric 	utility
Industry, 	21 	J.L. 	& Econ. 	269, 	272-76 	(1978).
22 	See, 	e.g., 	Stigler 	& Friedland, 	What 	Can 	Regulators 	Regulate?
The 	Case 	of 	Electricity,S 	J.L. 	& Econ. 	1 	(1962); 	Moore, 	The
Effectiveness 	of 	Regulation 	of 	Electric 	Utility 	Prices, 	36 	So.
Econ. 	J. 	365 	(1970); 	; 	Jordan, 	Producer 	Protection, 	Prior 	Market
Structure 	and 	the 	Effect 	of 	Government 	Regulation, 	15 	J.L. 	&
Econ. 	151 	(1972).
23 	We 	have 	no 	reason 	to 	believe 	that 	harbor 	pilotage 	is 	a
natural 	monopoly. 	For 	that 	reason, 	price 	regulation 	likely
represents 	a 	response 	to 	entry 	restrictions, 	which may 	enable
incumbent 	pilots 	to 	charge 	higher 	than 	competitive 	prices.
24 	Insofar 	as 	price 	regulation 	succeeds 	in 	maintaining 	prices 	at
a 	lower 	level 	than 	would 	prevail 	in 	an 	unregulated 	market, 	it 	can
reduce 	suppliers' 	incentive 	to 	provide 	the 	quantity 	and 	quality
of 	the 	regulated 	products 	that 	consumers 	desire.
25 	Regulations 	of 	Commission 	of 	Pilotage 	for 	the 	Port 	of
Charleston, 	§ 	4 	(emphasis 	added).

George 	L. 	Schroeder
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Such 	an 	incentive 	is 	restrained 	by 	regulatory 	barriers 	to 	entry
and 	the 	impediment 	to 	competitive 	operation 	of 	multiple 	pilot
boats. 	Consequently, 	regulatory 	restrictions 	would 	tend 	to
discourage 	cost-saving 	innovations 	that 	could 	lead 	to 	lower
prices. H
Finally, 	the 	statutory 	limitation 	on 	damages 	resulting 	from
pilots' 	negligence 	may 	reduce 	the 	quality 	of 	pilotage 	services.
Exposure 	to 	liability 	provides 	pilots 	with 	an 	incentive 	to 	adopt
safety measures 	whose 	cost 	is 	lower 	than 	the 	expected 	benefit.
For 	example, 	absent 	liability 	limitations, 	a 	rational 	pilot 	would
buy 	a 	$400 	device 	if 	it 	can 	reduce 	the 	likelihood 	of 	an 	accident
causing 	$50,000 	in 	damage 	from 	2 	percent 	to 	1 	percent. 27 	But
with 	a 	$5,000 	damage 	cap, 	the 	pilot 	would 	not 	buy 	the 	safety-
enhancing 	device 	unless 	its 	cost 	was 	less 	than 	$50. 	As 	a 	result,
overall 	safety 	is 	likely 	to 	diminish 	in 	the 	long 	run.
B. 	Auctioneers' 	Commission
You 	have 	asked 	us 	to 	address 	two 	provisions 	of 	the 	South
Carolina 	statute 	and 	regulations 	governing 	auctioneers. 	First,
the 	auctioneering 	statute 	requires 	applicants 	for 	an 	apprentice
auctioneer 	license 	to 	submit 	statements 	by 	at 	least 	two 	licensed
auctioneers 	attesting 	to 	the 	applicant's 	moral 	character. 28 	We
doubt 	that 	this 	provision 	has 	a 	significant 	effect 	on competition
because 	South 	Carolina 	law 	also 	provides 	for 	the 	licensing 	of
auctioneers 	who 	have 	not 	served 	as 	apprentices 	but 	have 	had 	at
least 	eighty 	hours 	of 	classroom 	instruction 	in 	auctioneering. 29
These 	applicants 	can 	satisfy 	the 	statutory 	moral 	fitness
26 	Another 	possible 	outcome 	of 	price 	regulation 	is 	that 	prices
are 	lower 	than 	they would 	be 	under 	an 	unregulated 	monopoly 	but
higher 	than 	they 	would 	be 	in 	an 	unregulated 	competitive 	market.
It 	is 	thus 	possible 	that 	pilotage 	prices 	could 	be 	even 	higher 	if
entry 	restrictions 	were 	not 	accompanied 	by 	price 	regulation,
though 	not 	as 	low 	as 	they 	would 	be 	if 	both 	entry 	restrictions 	and
price 	regulations 	were 	removed. 	For 	that 	reason, 	if 	the
Commission 	on 	Pilotage 	in 	fact 	has 	a 	functioning 	system 	for
regulating 	the 	price 	of 	services 	rendered, 	we 	suggest 	that 	any
repeal 	of 	price 	regulation 	should 	be 	accompanied 	by 	the 	repeal 	of
entry 	restrictions.
27 	This 	is 	because 	the 	value 	of 	a 	one 	percent 	reduction 	in 	the
probability 	of 	a 	$50,000 	loss 	is 	$500 	(one 	percent 	of 	$50,000).
For 	simplicity of 	illustration, 	we 	have 	eliminated 	the 	time
element 	from 	this 	example 	and 	assumed 	the 	loss 	to 	be 	immediate.
28
29
S.C. 	Code 	Ann. 	§ 	40-6-70.
S.C. 	Code 	Ann. 	§ 	40-6-130.

George 	L. 	Schroeder
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requirement 	by 	submitting 	the 	statements 	of 	two 	residents 	of
South 	Carolina, 	who 	need 	not 	be 	auctioneers. 3o This 	provision
would 	tend 	to 	prevent 	incumbent 	auctioneers 	from 	restricting
entry 	into 	the 	profession 	by 	refusing 	to 	certify 	applicants'
moral 	character. 	Consequently, 	the 	moral 	fitness 	requirement
would 	seem 	to 	have 	little 	adverse 	impact. 31
The 	second 	provision you 	have 	asked 	us 	to 	review 	is 	a
regulation 	that 	prohibits 	auctioneers 	from 	advertising 	any 	award,
title, 	or 	other 	recognition 	received 	from 	any 	association 	or
professional 	organization 	that 	has 	not 	been 	approved 	by 	the
Auctioneers' 	Commission. 32 	The 	regulation 	establishes 	a
procedure 	for 	requesting 	the 	Commission's 	approval 	of 	a
particular 	association 	or 	organization 	body 	for 	promotional
purposes 	and 	requires 	the 	Commission 	to 	grant 	such 	approval
unless 	a 	reference 	to 	that 	body would 	be 	misleading.
The 	advertising 	of 	awards, 	titles, 	or 	other 	forms 	of
recognition 	by 	professional 	organizations 	can 	help 	consumers
predict 	the 	nature 	and 	quality 	of 	the 	services 	available 	from
various 	practitioners. 	The 	quality 	of 	professionals 	within 	any
profession 	can vary 	widely, 	and 	the 	recognition 	of 	particularly
skillful 	practitioners 	by 	bona 	fide 	professional 	organizations
can 	be 	useful 	to 	consumers 	in 	differentiating 	professionals. 34
Professional 	awards 	and 	certification may 	provide 	a 	useful 	means
for 	consumers 	to 	overcome 	a 	lack 	of 	information 	about 	the
experience, 	knowledge, 	and 	skills 	of 	practitioners.
30 Id.
31 	To 	the 	extent 	that 	qualifying 	auctioneer 	classes 	are 	not
widely 	available, 	so 	that 	apprenticeship 	is 	the 	principal 	avenue
for 	entry 	into 	the 	profession, 	the 	requirement 	of 	attestations 	by
incumbent 	auctioneers 	could 	have 	some 	marginal 	adverse 	impact 	on
competition. 	See 	Part 	II(C), 	infra.
32
33
Regulations 	of 	the 	Auctioneers' 	Commission, 	§ 	14-18.
Id.
34 	The 	Alabama 	Supreme 	Court 	has 	observed 	that 	"[i]t 	would 	be
less 	than 	realistic 	for 	us 	to 	take 	the 	position 	that 	all 	lawyers,
in 	fact, 	possess 	equal 	experience, 	knowledge 	and 	skills 	with
regard 	to 	any 	area 	of 	legal 	practice." 	Ex 	Parte 	Howell, 	487
So.2d 	848, 	851 	(1986). 	The 	same 	is 	likely 	to 	be 	true 	for
auctioneers. 	The 	Alabama 	court 	held 	that 	a 	total 	ban 	on
attorneys' 	truthful 	representations 	of 	professional 	recognition
by 	certification 	organizations 	was 	unconstitutional, 	and 	elected
instead 	to 	permit 	advertising 	only 	of 	certification 	by 	approved
organizations.

George 	L. 	Schroeder
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Consumers 	benefit 	from 	information 	concerning 	professional
recognition 	when 	that 	recognition 	represents 	an 	objective 	measure
of 	a 	professional's 	performance 	that 	is 	relevant 	to 	the 	services
the 	professional 	provides. 	Absent 	these 	conditions, 	claims 	of
professional 	recognition may 	deceive 	consumers. 	The 	public 	may
be 	misled 	by 	claims 	concerning 	professional 	recognition 	that 	are
not 	in 	fact 	based 	on 	the 	professional's 	advanced 	training 	or
experience 	or 	the 	professional's 	attainments 	in 	the 	profession.
Claims 	of 	professional 	recognition may 	also 	mislead 	consumers
when 	a 	professional 	is 	recognized 	in 	a 	field 	that 	is 	not 	relevant
to 	the 	services 	the 	professional 	offers. 	For 	these 	reasons, 	some
regulation 	of 	professionals' 	certification claims 	may 	be
appropriate 	to 	prevent 	or 	cure 	any 	deception.
C. 	Board 	of 	Registration 	for 	Foresters
You 	have 	asked 	us 	to 	review 	two 	provisions 	of 	the 	South
Carolina 	law 	and 	regulations 	governing 	foresters. 	The 	first
provision 	requires 	applicants 	for 	a 	license 	as 	a 	forester 	to
furnish 	three 	references 	from 	foresters 	having 	personal 	or
professional 	knowledge 	of 	the 	applicant's 	forestry 	experience. 35
We 	are 	not 	sufficiently 	familiar 	with 	the 	structure 	of 	the
forestry 	market 	in 	South 	Carolina 	to 	predict 	the 	effects 	of 	this
requirement. 	While 	any 	provision 	that 	requires 	entrants 	to
secure 	the 	endorsement 	of 	incumbents 	to 	enter 	a 	profession 	may
restrict 	entry, 	it 	will 	not 	necessarily 	have 	that 	effect. 	Many
states, 	for 	example, 	require 	applicants 	for 	licenses 	as 	attorneys
to 	secure 	references 	from 	incumbents, 	but 	this 	requirement 	is
highly 	unlikely 	to 	inhibit 	entry. 	To 	the 	extent 	that 	entry 	is
deterred, 	it 	is 	by 	the 	licensing 	requirement 	itself. 	On 	the
other 	hand, 	if 	the 	forestry 	market 	is 	not 	competitive 	and 	the
number 	of 	incumbent 	licensees 	is 	small, 	the 	reference 	requirement
could 	result 	in 	restricted 	entry.
The 	second 	provision 	is 	a 	regulation 	setting 	forth 	a 	code 	of
ethics 	for 	foresters. 36 Although 	some 	codes 	of 	ethics 	may 	mask
anticompetitive 	restrictions 	in 	the 	guise 	of 	ethics,37 	codes 	of
ethics 	can 	also 	be 	beneficial. 	Provisions 	in 	codes 	of 	ethics
that 	prohibit 	conflicts 	of 	interest 	or 	breaches 	of 	confidential
relationships, 	for 	example, 	can 	benefit 	consumers. 	We 	do 	not
35 S.C. 	Code 	Ann. 	§ 	48-27-140.
36 Regulations 	of 	Forestry 	Registration 	Board, 	§ 	53-15.
37 	See, 	e.g., 	National 	Society 	of 	Professional 	Engineers 	v.
United 	States, 	435 	U.S. 	679 	(1978). 	.

George 	L. 	Schroeder
Page 	10
find 	any 	provisions 	in 	the 	code 	of 	ethics 	adopted 	by 	the
Foresters' 	Registration 	Board 	that 	raise 	competitive 	concerns.
Conclusion
We 	are 	pleased 	to 	have 	this 	opportunity 	to 	present 	our views
on 	the 	licensing 	statutes 	and 	regulations 	that 	you 	have 	submitted
for 	our 	review. 	Our 	analysis 	suggests 	that 	certain provisions
governing 	harbor 	pilots, 	auctioneers, 	and 	foresters 	could 	have
anticompetitive 	effects. 	We 	are 	particularly concerned 	that
provisions 	restricting 	entry 	into 	the 	harbor 	pilotage 	business
could 	result 	in 	higher 	prices 	for 	pilotage 	services. 	If 	the
Council 	has 	questions 	concerning 	provisions 	not 	discussed 	in 	this
letter, 	we 	encourage 	you 	to 	contact 	us 	for 	further 	review.
Sincerely,
~~.~Kevin 	J. 	Arquit
Director