Deregulation and the Lawyers’ Cartel

Abstract

At one time, the legal profession largely regulated itself. However, based on the economic notion that increased competition would benefit consumers, jurisdictions have deregulated their legal markets by easing rules relating to attorney advertising, fees, and, most recently, nonlawyer ownership of law firms. Yet, despite reformers’ high expectations, legal markets today resemble those of previous decades, and most legal services continue to be delivered by traditional law 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, the regulatory 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 services providers cannot make legal markets more efficient. We illustrate our theoretical account with evidence from the United Kingdom, Europe, and Asia.

For legal markets to better serve the public, regulators must tailor solutions by segment. Regulators should seek to minimize negative externalities associated with the delivery of legal services to the corporate segment and confront information asymmetries that lead to the maldistribution of legal services in the consumer segment. Deregulation alone is insufficient and may in fact exacerbate existing market failures.

Garoupa, Nuno and Markovic, Milan, Deregulation and the Lawyers’ Cartel (June 23, 2021). University of Pennsylvania Journal of International Law, Forthcoming, Texas A&M University School of Law Legal Studies Research Paper Forthcoming, George Mason Law & Economics Research Paper No. 21-16,
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