us-ftc-advocacy-filings-4f1831d5e4e57b0185c7083941faafaa•FTC Staff Comment to the Hon. Joe L. Heaton Concerning Oklahoma H.B. 1432 to License and Regulate Dry Cleaning, Dying, and Pressing Firms
FTC Staff Comment to the Hon. Joe L. Heaton Concerning Oklahoma H.B. 1432 to License and Regulate Dry Cleaning, Dying, and Pressing Firms
us-ftc-advocacy-filings-4f1831d5e4e57b0185c7083941faafaaFTC Staff Comment to the Hon. Joe L. Heaton Concerning Oklahoma H.B. 1432 to License and Regulate Dry Cleaning, Dying, and Pressing FirmsAdvocacy Filing
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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.
04/17/1987 10:22 FTC DALLAS R~9ion **** 168el 8 729 7030 P.05 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.
\
04/17/1987 10:23 FTC. DALLAS R~gion **** 1680 8 729 ?Q30 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.
04/17/198'7 10:24 FTC ~LAS Re9ion **** 1600. 8 729 7030 P.08 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).
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