FTC Staff Comment Before the South Carolina Legislative Audit Council Concerning Possible Restrictive or Anticompetitive Effects of Statutes and Regulations Governing Nine State Agencies

UNITED STAYES OF AMERICA
FEDERAL TRADE COMMISSION
WASHINGTON. D.C. 20580
January 	23, 	1989
George 	L. 	Schroeder
Director
Legislative Audit Council
State 	of 	South Carolina
620 	NCNB Tower
Columbia, 	South 	Carolina 	29201
COMMISSION AUTHORIZED
,
Dear Mr. 	Schroeder:
The 	staff 	of 	the 	Federal 	Trade 	Commission 1/ 	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
anticompeti tive 	effects 	of 	the 	state·' s 	statutes 	or 	regulations
governing 	the 	activities 	of 	nine 	state 	agencies: 	(i) 	the 	Board 	of
Registration 	for 	Landscape 	Architecture; 	(ii) 	the 	Board 	of
Architectural 'Examiners; 	(iii) 	the 	Board 	of 	Funeral 	Service;
(iv) 	the 	Board of 	Examiners 	for 	Registered 	Sanitarians; 	(v) 	the
Board 	of 	Social 	Work 	Registration; 	(vi) 	the 	State 	Cemetery 	Board;
(vii) 	the 	Building Code 	Council; 	(viii) 	the 	Board 	for 	Barrier
Free 	Design; 	and 	(ix) 	the 	Athletic 	Trainers 	Advisory
Committee. 	2./
The comments 	below 	identify 	provisions 	of 	the 	relevant
statutes 	and 	regulations 	that 	may 	have 	anticompetitive 	effects
1/ 	These 	comments 	represent 	the 	views 	of 	the 	staff 	of 	the
Federal 	Trade 	Commission's 	Bureau 	of 	Competition 	and 	do 	not
necessarily 	represent 	the 	views 	of 	the 	Commission 	itself 	or 	any
individual 	Commissioner.
2./ 	Commission 	staff 	prOVided comments 	to 	the 	Legislative 	Audit
Council 	of 	South 	Carolina 	on 	four 	prior 	occasions. 	On 	February
19, 	1987, 	Commission 	staff 	commented on 	the 	sunset 	audit 	of 	the
Boards 	of 	Optometry 	and 	Opticianry. 	On April 	23, 	1987,
Commission 	staff 	commented 	on 	the 	sunset 	audit 	of 	the 	Boards 	of
Podiatry 	Examiners, 	Occupational 	Therapy 	Examiners, 	Speech 	and
Audiology 	Examiners 	and 	Psychology 	Examiners. 	On 	September 	29,
1987, 	Commission 	staff 	commented 	on 	statutes 	administered 	by 	the
South 	Carolina 	Public 	Service 	Commission. 	Finally, 	on 	January
15, 	1988, 	Commission staff 	commented 	on 	the 	regulations 	governing
the 	state's 	Licensing 	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, 	and
Manufactured 	Housing 	Board.

George 	L. 	Schroeder 	-2-
and 	thereby 	injure 	consumers. 	In 	Part 	I 	of 	these 	comments, 	we
identify 	the 	interest 	and 	experience of 	the 	Commission's 	staff 	in
the 	area 	of 	occupational 	regulation. 	In 	Part 	II, 	ve 	discuss 	the
considerable 	published 	research on the effects 	of 	occupational
licensing. 	In Part 	III, 	we 	examine 	specific 	provisions 	of 	the
.tatutes 	and 	regulations 	that 	may 	have 	anticompetitive 	effects.
We 	do 	not 	have 	any comments 	with 	respect 	to 	the 	statutes 	and
regulations 	governing the 	state's 	Cemetery 	Board, 	the 	Board 	for
Barrier 	Free 	Design, 	and 	the 	Athletic 	Trainers 	Advisory
Committee.
I. 	Interest 	ond 	Experience 	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. 	S 	45. 	Under 	this
statutory mandate, 	the 	Commission seeks 	to 	identify 	restrictions
that 	impede 	competition or 	increase 	costs 	without 	offering
countervailing benefits 	to 	consumers. 	The 	Commission 	has 	sought
to 	improve 	consumer 	access 	to 	professional 	services 	by 	initiating
. 	Antitrust 	enforcement 	proceedings 	J/ 	and conducting 	studies
concerning various 	facets 	of 	the 	regulation of 	licensed
professions. 	i/ 	In 	addition, 	the 	Commission's 	staff 	has
submitted 	comments 	~o state 	legislatures 	and 	administrative
J/ 	~, 	e.g., 	Massachusetts 	Board 	of 	Registration 	in 	Optometry,
[FTC 	Complaints 	and 	Orders 	transfer binder] 	5 Trade 	Reg. 	Rep.
(CCH) 	! 	22,555 	(June 	21, 	1988); 	Rhode 	Island 	Board 	of
Accountancy, 	107 	F.T.C. 	293 	(1986) (consent 	order); 	Louisiana
State 	Board 	of 	Dentistry, 	106 	r.T.C. 	65 	(1985) 	(consent 	order);
, 	American 	Medical 	Ass'n, 	94 	r.T.C. 	701 	(1979), 	aff'd, 	638 	F.2d 	443
(2d 	Cir. 	1980), 	Off'd 	memo 	by 	on 	e~ally divided 	court, 	455 	U.S.
676 	(1982); 	American 	Dental 	Ass'o, 	94 	r.T.C. 	403 	(1979),
modified, 	100 	F.T.C. 	448 	(1982), 	101 	r.T.C. 	34 	(1983) 	(consent 	order).
~/ 	see, 	e.g., 	Cleveland 	Regional 	Office and 	Bureau 	of 	Economics,
Federal 	Trade 	Commission, 	Improying 	CODsumer 	Access 	to 	Legal
Services: 	The 	Case 	for 	Remoyiog 	Restrictions 	00 Truthful
Adyertising 	(1984); 	Bureaus 	of 	Consumer 	Protection and 	Economics,
Federal 	Trade 	Commission, 	A Comparative 	AnOlysis 	of 	Cosmetic 	Lens
Fitting 	by 	Ophtholmologists, 	Optometrists, 	And 	Opticions 	(1983);
Bureau 	of 	Economics, 	FederAl 	Trade 	Commission, 	Effects 	of
Restrictions 	on 	Adyertising 	And 	Commercial 	Proctice 	in 	the
Professions: 	The 	Cose 	of 	Optometry 	(1980).

George 	L. 	Schroeder
agencies 	on various 	issues 	of 	professional 	licensing 	and
regulation. 	Sf
II. 	The 	Costs 	And 	Benefits 	of 	OccupAtional 	Licensing
-3-
,
The 	rationale 	for 	occupational 	licensing 	traditionally 	has
been 	to 	guarantee 	a 	minimum quality 	standard 	in order 	to
Ca) 	reduce 	uncertainty about 	quality 	that consumers 	face 	when
purchasing 	professional 	services, 	and 	(b) 	prevent 	those 	costs 	of
low-quality 	service that might 	be 	Lmposed.on 	society.
Proponents 	generally 	justify occupational 	licensing 	on 	the
ground 	that 	regulation 	is 	necessary 	to 	correct 	an 	informational
asymmetry 	between service 	providers 	and consumers. 	Because
licensed 	occupations 	often provide 	services 	that 	require 	highly
specialized, 	technical 	expertise, 	it 	is 	thought 	that 	consumers
may 	lack 	the 	information 	and 	resources 	to 	evaluate 	the 	quality 	of
services. 	For e~ample, an 	unsuccessful 	litigant may 	be 	unable 	to
determine 	whether he 	failed 	to 	prevail 	because 	his 	case 	lacked
merit 	or 	because 	his 	lawyer was 	incompetent. 	A patient 	whose
treatment 	fails 	to 	cure 	an 	illness 	similarly may 	be 	unable 	to
determine 	whether 	the 	treatment 	failed 	because 	of 	the 	limitations
of 	medical 	science 	or 	the 	failings 	of 	her doctor. 	If 	consumers
cannot 	evaluate 	quality,· producers 	may.provide 	lower 	quality
services 	t~an consumers 	desire. 	~/ 	Licensing 	thus 	may 	be
necessary 	to 	raise 	service 	quality 	above 	the 	level 	that 	woul?
prevail 	in 	an 	unregulated 	market.
In 	many 	instances, 	however, 	this 	arqument 	in 	support 	of
mandatory 	licensing 	is 	not 	entirely 	convincing. 	Although
consumers 	may 	have 	less 	information 	on quality 	than 	producers,
they 	often 	receive 	adeqUAte 	information 	from 	a 	variety 	of
sources. 	1/ 	Consumers 	can 	assess 	quality 	on 	the 	basis 	of 	their
own 	purchase 	experience 	and 	the 	experience 	of 	friends, 	relatives,
or 	neighbors, 	information 	provided 	by 	sellers 	or 	by 	various
consumer-oriented publications, 	and 	inferences 	drawn 	from 	the
S/ 	In 	the 	past 	two years, 	Commission 	staff 	have 	commented 	on
rules 	of 	professional 	conduct 	or 	regulations 	governing 	attorneysr
chiropractors, 	dentists, 	optometrists, 	pharmacists, 	physical
therapists, 	physicians, 	and 	real 	estate 	brokers.
if 	~ Leland, 	Quacks. 	Lemons. 	and 	Licensing; 	A Theory 	of
Minimum 	Quality 	Standards, 	87 	J. 	Pol. 	Econ. 	1328 	(1979); 	Leland,
Minimum-Quality 	Standards 	and 	Licensing 	in 	Markets 	yith
Asymmetric 	Information, 	in S. 	Rottenberg, 	Occupotiona~ Licensure
And 	Regulation 	264 	(1980).
1/ 	S. 	Young, 	The 	Rule 	of 	Experts: 	Occupational 	Licensing 	in
America 	17 	(1988).

George L. 	Schroeder 	-4-
, .
length 	of 	the 	seller's 	experience 	in 	business. 	a/ 	Voluntary
certification 	also conveys 	to 	consumers 	information on 	service
quality. 	~/ 	Consequently, 	in 	many cases 	the markets 	for
professional 	services 	may 	generate 	sufficient 	information 	to
enable consumers 	to make 	informed 	judgments 	about 	service 	quality
without 	the 	imposition 	of 	licensing.
The 	second common 	argument 	in 	favor 	of 	licensing 	is 	that
purchasers 	of 	low quality professional 	services 	may 	impose
significant 	costs 	on 	third 	parties. 	For example, 	a 	person
suffering 	from 	a 	contagious 	disease who 	is 	treated 	by 	an
incompetent 	physician may 	pass 	on 	the 	disease 	to 	other 	persons
who 	did 	not 	deal 	with 	the 	incompetent 	physician. 	While 	this
argument 	has 	theoretical 	appeal 	in 	some 	cases, 	its 	actual
relevance 	to 	any 	particular profession must 	be 	examined 	closely.
A fundamental 	objection 	to 	licensing 	and 	related
governmental 	restrictions 	on 	professional 	practice 	is 	that 	they
often 	fail 	to 	achieve 	their 	stated 	purpose 	of 	raising 	quality.
Empirical 	research, 	including 	studies 	by 	the 	Commission's 	staff,
indicates 	that 	licensing may 	not 	increase 	the 	quality 	of 	services
offered 	to consumers. 	For 	example, 	a 	study 	of 	the 	relationship
between 	licensing 	and 	fraud 	in 	the 	television 	repair 	industry
found 	that 	licensing 	failed 	to 	reduce 	the 	incidence 	of 	fraud
c~mpared to 	an 	unregulated 	ma~~et. ~/ 	Another 	study 	examined
a/ 	~. 	at 	17-18. 	Many 	products 	that 	consumers 	commonly
purchase, 	such 	as 	microwave 	ovens, 	personal 	computers, 	or
automobiles, 	are 	technologically complex. 	Although 	very 	few
consumers 	understand 	the 	mechanisms 	that 	make 	these 	products
operate, 	they 	nevertheless 	are 	able 	to 	make 	judgments 	concerning
product 	quality, 	principally 	through 	the 	sources 	described 	above.
~/ 	Under 	a 	certification 	program, 	only 	persons 	who 	meet
certification 	requirements 	may 	identify 	themselves 	as 	being
certified, 	but 	noncertified 	persons 	are 	not 	barred 	from
practicing 	the 	occupation. 	In 	contrast, 	under 	a 	licensing
system, 	only 	individuals 	who 	obtain 	a 	license 	from 	the 	state 	may
lawfully 	engage 	in 	the 	practice 	of 	the 	licensed 	occupation. 	Even
if 	the 	market 	did 	not 	furnish 	sufficient 	information 	on 	service
quality 	to 	consumers, 	a 	state-supported 	certification 	program 	may
provide 	them 	that 	information without 	imposing 	on 	them 	the 	types
of 	costs 	associated with 	licensing. 	~ 	M. 	Friedman, 	Capitalism
And 	Freedom 	144-49 	(1962).
~/ 	J. 	Phelan, 	Regulation 	of 	the 	Teleyision 	Repair 	Industry 	in
Louisiana 	and 	California: 	A Cose 	Study 	(Federal 	Trade 	Commission
1974). 	The 	study 	also 	found 	that 	the 	cost 	of 	repairs 	was 	higher
in 	New 	Orleans, 	which 	imposed 	a 	licensing 	requirement, 	than 	in
(continued ... )

George 	L. 	Schroeder 	-5-
,
,
licensing 	rules 	that 	restricted 	the 	use 	of 	dental 	auxiliaries
(hygienists 	and 	assistants) 	to 	perform 	certain dental 	procedures.
The 	study 	found 	that 	the 	quality of 	aervice 	provided by 	the
auxiliaries 	in performing 	those procedures 	was 	equal 	to 	that
provided 	by 	the 	licensed dentists. 	~/ 	Another recent 	FTC 	staff
study 	found 	that 	the 	quality 	of 	eye 	examinations 	by optometrists
vas 	similar 	in 	the 	different 	jurisdictions 	studied, 	even 	though
the 	stringency of 	their 	licensing 	regulations 	differed. 	11/
Even when occupational 	licensing does 	increase 	the 	quality
of 	services 	offered by 	licensed 	practitioners, 	it 	does 	so 	at 	a
cost. 	By 	restricting 	the 	supply 	of 	practitioners 	and 	raising 	the
cost 	of 	entry 	into 	licensed occupations, 	licensing 	tends 	to
increase 	the 	price 	of 	services 	to 	consumers. 	lJ/ 	In 	addition, 	by
raising 	the 	cost 	and 	limiting 	the 	availability 	of 	services,
licensing 	tends 	to 	induce 	some 	consumers 	to 	do 	without 	the
services 	or 	to 	rely 	on 	self-help. 	Consumers' 	tendency 	to 	use
.self-help measures 	when 	the 	cost 	of 	services 	is 	raised 	or 	the
supply 	is 	limited, 	in 	turn, 	may·result 	in 	a 	reduction 	of 	the
overall 	quality 	of 	services 	actually 	consumed even when 	that
portion 	of 	the 	services 	delivered 	by 	the 	licensed 	occupation
increases 	in quality. 	Thus, 	studies 	have 	shown 	that 	restrictive
licensing 	of 	electricians 	was 	associated 	with 	a 	higher 	rate 	of
death 	by 	electric 	shock, 	apparently 	because 	more 	consumers
~/( ... continued)
San 	Francisco 	and 	Washington, 	D.C., 	which 	did 	not. 	In 	addition,
the 	study 	found 	that 	the 	incidence 	of 	fraud 	was 	60 	percent 	lower
in 	San 	Francisco, 	where 	repair 	personnel 	were 	not 	licensed 	but
where 	a 	state 	agency 	performed 	unannounced 	investigations 	of
repair 	facilities, 	than 	in 	New 	Orleans, 	where 	repair 	personnel
were 	licensed.
~/ 	N. 	Liang 	and 	J. 	Ogur, 	Restrictions 	on 	Dental 	Auxiliaries
(Federal 	Trade 	Commission 	1987). 	Auxiliaries 	include 	hygienists,
who 	are 	licensed 	in 	alISO 	states, 	and 	dental 	assistants, 	who 	are
generally 	unlicensed. 	For the 	procedures 	studied, 	licensing
requirements 	in many 	states 	restricted 	the 	use 	of 	auxiliaries.
The 	restrictions 	included 	outright 	prohibitions 	on 	the 	use 	of
auxiliaries 	to 	perform 	certain 	procedures, 	requirements 	that
auxiliaries 	be 	supervised 	by 	licensed 	dentists, 	and 	restrictions
on 	the 	number 	of 	auxiliaries 	that 	dentists 	could 	employ.
12/ 	The 	Case 	Qf 	OptQmetkY, 	supra 	nQte 	4; 	BQnd, 	KWQka, 	Phelan 	&
Taylor, 	Self 	RegulatiQn 	in 	QptometkY: 	The 	Impact 	Qn 	Price 	and
QuOlity, 	7 Law 	& Human 	Behav. 	219 	(~983).
lJ/ 	~, 	e.g., 	The 	Case 	of 	OptomettY, 	supra 	note 	4; 	Shepard,
Licensjng 	Restrjctions 	and 	the 	Cost 	of 	Dental 	Care, 	21 	J.L. 	&
Econ. 	187 	(1978); 	Phelan, 	supra 	nQte 	10.

George 	L. 	Schroeder 	-6-
resorted 	to 	self-help, 	~/ and 	that 	houses 	tended 	to 	remain
, 	unsold 	for 	longer periods 	in 	areas 	with 	restrictive 	licensing 	of
real 	estate 	brokers. 	~/ 	The 	overall 	result 	in many 	cases 	is
that 	-the 	lower middle 	classes 	and 	the 	poor 	• 	• 	• 	tend 	to 	be
ahort-changed 	and 	offered 	low 	quality or no 	service 	at 	all." 	~/
One 	alternative 	to 	licensing 	that 	regulatory 	authorities 	may
consider 	is 	voluntary 	certification. 	Under 	a 	certification
program, 	only 	persons 	who meet 	specified requirements, 	such 	as
educational, 	testing, 	or experience 	requirements, 	may 	hold
themselves 	out 	as 	certified members 	of 	the 	profession, 	but
persons 	who 	do 	not 	meet 	these 	requirements 	are 	nevertheless
permitted 	to 	practice 	their 	trade. 	121 	The 	advantage 	of 	this
Bort 	of 	system 	is 	that 	it 	conveys 	to 	consumers 	the 	kinds 	of
information 	that 	a 	licensing 	regime 	is 	intended 	to 	provide 	but
does 	not 	impose 	quality 	preferences 	on 	consumers. 	Consequently,
consumers 	who 	prefer to 	purchase 	lower 	priced, 	lower 	quality
services 	may· continue 	to 	do 	so.
III. 	Analysis 	of 	Statutes 	and 	Regulations
A. 	Board 	of 	Registration 	for 	Landscape 	Architecture
The 	regulatory 	scheme 	for 	landscape 	architects 	resembles 	in
many 	respects 	a 	voluntary 	ce~tification program. 	Some 	aspects 	of
landscape 	architecture 	may 	be 	practiced 	without 	a 	license. 	South
Carolina 	law 	permits 	landscape 	contractors, 	gardeners, 	and
nursery 	owners 	to 	engage 	in 	the 	practice 	of 	their 	professions
without 	regulatory 	constraints. 	l!/ 	In 	addition, 	architects 	who
Iii 	~ 	Carroll 	& Gaston, 	Occupational 	Restrictions 	and 	the
Quality 	of 	Service 	Receiyed: 	Some 	Evidence, 	47 	South. 	Econ. 	J.
959 	(1981); 	Carroll 	& Gaston, 	Occupational 	Licensing: 	Final
Report 	(1977). 	~ 	generally 	Carroll 	& Gaston, 	Occupational
Licensing 	and 	the 	Quality 	of 	Service: 	An 	Oyerview, 	7 	Law 	& Hum.
Behav. 	139 	(1983); 	M[I]n 	the 	seven most 	restrictive 	states, 	up 	to
ten 	times 	more 	accidental 	electrocutions 	occurred." 	Hogan, 	~
Effectiyeness 	of 	Licensing: 	HistohY. 	Eyidence. ·and
Recommendations, 	7 Law 	& Hum. 	Behav. 	117, 	123 	(1983).
,
~/ 	~ 	Occupational 	Licensing: 	Final 	Report, 	supra 	note 	14.
The 	increased 	duration 	of 	availability 	for 	sale 	is 	correlated
with 	a 	lower 	ratio 	of 	brokers 	per 	capita. 	~ 	occupational
Restrictions, 	supra 	note 	14, 	47 	South. 	Econ. 	J. 	at 	970-73.
~I 	Quality 	of 	Service, 	supra 	note 	14, 	at 	145.
12/ 	~ 	note 	9, 	supra.
~/ 	S.C. 	Code 	Ann. 	S 40-28-150(g), 	(h).

George 	L. 	Schroeder 	-7-
,
are 	not 	licensed 	as 	landscape 	architects, 	engineers, 	and
surveyors 	are 	permitted. to perform 	~landscape architectural 	work
••• 	when 	such work 	is 	incidental 	to 	their practice.~ ~/ 	The
statute appears 	to 	require consumers 	to 	retain 	the 	services 	of
licensed 	landscape 	architects 	only under 	very 	limited
circumstances. 	2n/ 	For 	that 	reason, 	a 	license 	as 	a 	landscape
architect, 	which 	entitles 	its 	bearer 	to 	use 	the 	title 	wlandscape
architect,~ is 	similar 	in 	nature 	to 	a 	certification 	scheme 	in
that 	it 	does 	not 	bar 	unlicensed persons 	from 	performing 	many 	of
the 	functions 	of 	a 	landscape 	architect.
Two 	restrictions 	in 	the 	statutes 	and regulations 	governing
landscape 	architects, 	however, 	may 	have 	potential 	anticompetitive
effects. 	First, 	the 	statute 	bars 	corporations 	and 	partnerships
from 	using 	Wany 	form 	of 	the 	title 	'Landscape Architect' 	in
connection with 	the 	corporate 	or 	partnership 	name." 	21/ 	The 	use
of 	the 	title 	landscape 	architect 	in 	the 	title 	of 	a 	firm 	whose
members 	are 	so 	licensed 	could 	convey 	useful 	information 	to
consumers 	and'reduce 	their 	search costs 	in 	identifying 	and
procuring 	the 	services 	of 	landscape 	architects. 	The 	harm 	that
could 	be 	caused by the 	use 	of 	the 	title 	in 	firm 	names 	is 	not
readily 	apparent. 	For 	that 	reason, 	the 	Council 	may 	wish 	to
consider whether 	to 	retain 	this 	prohibition.
The 	second 	restriction 	that 	the 	Council 	may wish 	to 	consider
is 	set 	forth 	in 	the 	regulations 	of 	the 	Landscape 	Architects 	Board
of 	Registration. 	Under· those 	regulations, 	a 	landscape 	architect
is 	subject 	to 	disciplinary 	action 	for 	obtaining, 	offering 	to
undertake, 	or 	accepting 	a 	commission 	for 	which 	the 	architect
knows 	another 	firm 	has 	been 	selected 	or 	employed, 	unless 	the
architect 	has 	evidence 	that 	the 	commission 	has 	been
terminated. 	22/ 	Restrictions 	on 	the 	ability 	of 	producers 	of
goods 	or 	services 	to 	accept 	an 	offer 	from 	a 	potential 	client 	who
has 	procured 	the 	services 	of 	another 	producer may, 	depending 	upon
~/ 	S.C. 	Code Ann. 	S 40-2B-150(b)-(d).
~/ 	The 	use 	of 	a 	landscape 	architect 	would 	appear 	to 	be 	required
for 	the 	design 	of 	landscaping 	projects 	that 	are 	not 	incidental 	to
the 	practice 	of 	other design 	professionals 	and 	that 	encompass
structural 	features 	other 	than 	plantings. 	The 	licensing
requirement 	would 	thus 	appear 	to 	be 	limited 	to major 	landscaping
projects. 	It 	may 	be 	argued 	that 	the 	selection of 	an 	incompetent
architect 	to 	work 	on 	such projects 	could 	cause 	harm 	to 	third
parties, 	such 	as 	through 	drainage 	into 	adjacent 	properties.
21/ 	S.C. 	Code 	Ann. 	S 40-2B-160(b).
22/ 	Regulations 	of 	Landscape 	Architects 	Board 	of 	Registration,
S 	74-B(A)(5), 	(B).

the 	circumstances, 	lead 	to 	higher prices 	by 	restraining
competition 	among 	producers. 	We 	do 	not 	have 	sufficient
information on 	the 	market 	for 	landscape 	architectural 	services 	in
South Carolina 	or the 	rationale 	for 	the 	adoption of 	this 	rule 	to
.ssess 	the 	rule's 	probable 	effects. 	We 	note, 	however, 	that 	if
the 	purpose 	of 	the 	rule 	is 	to 	prevent 	interference with
contractual 	relationships, 	it may 	be 	overbroad 	insofar 	as 	it
prohibits 	the 	solicitation of 	business 	from 	a 	client who 	has
-selected" 	a 	landscape 	architect 	but 	has 	not 	entered 	into 	a
contract 	for 	the 	architect's 	employment. 	-The 	Council 	may 	wish 	to
consider 	the 	specific 	reasons 	for 	the 	promulgation 	of 	this 	rule
and 	weigh 	the 	benefits, 	if 	any, 	of 	the 	rule 	against 	its 	potential
costs.
,
George 	L. 	Schroeder 	-8-
,
B. 	Board 	of 	Architectural 	Examiners
The 	licensing 	scheme 	for 	architects 	in 	South 	Carolina 	also
bears 	strong 	resemblance 	to 	a 	certification program. 	Designers
or 	planners 	of 	buildings 	must 	be 	licensed 	as 	architects 	only 	when
designing major 	structures. 	21/ 	Except 	with 	respect 	to 	the
construction 	of 	major 	structures, 	the 	licensing of 	an 	architect
serves 	as 	a 	seal 	of 	approval 	of 	the 	competence 	of 	the 	license
holder 	rather 	than 	as 	a 	barrier 	to 	entry 	into 	the 	field 	of
building 	design. 	li/
Two 	restrictions 	in 	the 	statutes 	and 	regulations 	governing
the 	licensing 	of 	architects 	may 	reduce 	co~sumer welfare. 	First,
the 	regulations 	of 	the 	Board 	of 	Architectural 	Examiners 	subject
21/ 	Under 	S.C. 	Code 	S 	40-160(3), 	persons 	not 	licensed 	as
architects 	may 	make 	drawings 	and 	specifications 	for 	certain 	types
of 	structures 	if 	they 	sign 	them 	with 	"the 	true 	title 	of 	their
occupations 	... 	. " 	The 	exempted 	structures 	include:
(a) 	buildings 	used 	solely 	for 	family 	purposes: 	(b) 	buildings 	with
an 	area 	of 	less 	than 	6,000 	square 	feet, 	unless 	such 	buildings 	are
to 	be 	used 	for 	educational, 	institutional, 	or 	hazardous 	purposes;
(c) 	family 	residences 	of 	up 	to 	four 	units, 	with each 	having 	a
grade 	level 	exit; 	(d) free 	standing 	places 	of 	assembly 	with 	a
capacity 	of 	no more 	than 	75 	persons: 	(e) 	mercantile 	and
industrial 	buildings 	with 	a 	capacity 	of 	no more 	than 	100 	persons;
and. (f) 	alterations 	to 	exempted 	structures.
2!/ 	With 	respect 	to 	the 	structures 	for 	which 	the 	use 	of 	a
licensed 	architect 	is 	required, 	the 	use 	of 	an 	incompetent
architect 	could 	have 	an 	effect 	on 	a 	large 	number of 	third
parties. 	For 	example, 	the 	collapse 	of 	a 	large 	public 	structure
will 	likely 	injure 	many 	individuals 	who 	never 	dealt 	with 	its
designer. 	It 	is 	therefore 	arguable 	that 	a 	licensing requirement
is 	justified 	if 	licensing 	in 	fact 	does 	guarantee 	the 	desired
level 	of 	competence.

George 	L. 	Schroeder 	-9-
,
architects 	to 	disciplinary 	action 	for 	wdishonest 	practice,
unprofessional 	conduct 	or 	incompetent 	practice" 	if 	they 	accept
compensation 	from 	materials 	or equipment 	suppliers 	in 	return 	for
.pecifying or endorsing 	their 	products. 	~/ 	This 	restriction may
have 	an 	inefficient 	effect 	in 	that 	the 	provision of 	compensation
by suppliers 	may 	create 	an 	incentive 	for 	architects 	to
familiarize 	themselves 	with 	new 	products 	in 	the market 	and
.pacify them 	in 	building plans. 	~/ 	Such 	specification, 	in 	turn,
reduces 	search 	costs 	for 	consumers 	who 	purchase 	architectural
.ervices. 	For that 	reason, 	a 	prohibition ~f the 	practice 	may 	not
serve 	the 	interests 	of 	consumers. 	Insofar 	as 	the 	state 	has
determined 	that 	the 	payment 	of 	compensation 	by materials 	or
equipment 	suppliers 	has 	unduly 	influenced the 	judgment 	of
architects 	in 	the 	state, 	it may wish 	to consider 	requiring
architects 	who 	receive 	such 	payments 	to 	disclose 	them 	to 	their
clients.
Second, 	the 	regulations 	prohibit 	architects 	from 	making
gifts 	with 	the 	intent 	of 	influencing the 	judgment of 	existing 	or
prospective 	clients. 	22/ 	Although 	the 	regulation 	may 	be 	intended
to 	prohibit 	bribery, 	its 	effect may 	be much wider. 	The 	provision
of 	gifts 	from 	the 	architect 	to 	the 	client 	(as 	opposed 	to 	agents
or 	employees 	of 	the 	client) 	may be 	a 	form 	of 	price 	competition
among 	architects. 	The 	regulation, 	as 	currently 	drafted, 	thus 	may
prohibit 	both 	desirable 	comp~ition among 	architects 	and 	payments
used 	to 	taint 	the 	judgment 	of 	employees 	of 	potential 	clients.
The 	Council 	may 	wish 	to 	consider ways 	of 	limiting 	this 	regulation
to 	prohibiting 	undue 	influence 	of 	employees 	or 	agents 	of
potential 	clients 	but 	permitting 	architects 	to 	give 	gifts 	or
other 	inducements 	to 	the 	clients 	themselves.
C. 	. 	Board 	of 	Funeral 	Service
Under 	South 	Carolina 	law, 	no 	person 	may 	be 	issued 	a 	license
as 	an 	embalmer 	or 	a 	funeral 	director 	unless 	that 	person 	has
completed 	a minimum 	of 	24 	months 	of 	service 	as 	an 	apprentice
under 	the 	direct 	supervision 	of 	a 	person 	so 	licensed 	and 	actively
practicing 	within 	the 	state. 	2a/ 	In 	addition, 	the 	statute 	limits
.
~/ 	Regulations 	of 	Board of 	Architectural 	Examiners, 	S 	11-15,
ll-15(A) (3).
~/ 	We 	noted with 	respect 	to 	an 	identical 	restriction 	in 	the
regulations 	of 	the 	South 	Carolina 	Board 	of 	Engineering 	Examiners
that 	"[w]hile 	this 	regulation 	would 	prevent 	clearly 	fraudulent
'kickbacks' 	that 	would 	harm 	consumers, 	it 	might 	also 	inhibit
potentially beneficial 	outcomes." 	FTC 	Staff 	Comments 	to 	George
L. 	Schroeder, 	January 	15, 	1988, 	at 	11.
22/ 	Regulations 	of 	Board 	of 	Architectural 	Examiners, 	S 	11-15(D)(2).
ll/ 	S.C. 	Code Ann. 	S 40-19-100(1)(A)(v}, 	(l}(B}(iv).

George 	L. 	Schroeder 	-10-
the 	number 	of 	apprentices 	that 	may 	be 	employed by 	each 	license
holder. 	~/ 	We 	presume 	that 	the 	state 	intends 	by 	this
requirement 	to 	facilitate 	a 	minimum 	level 	of 	competence 	for
embalmers 	or 	funeral 	directors. 	This 	type 	of 	requirement,
however, 	could 	also be 	used 	by 	incumbent 	embalmers 	or 	funeral
directors 	to 	restrict entry 	into 	those 	professions 	in 	the 	state
and 	thereby 	increase 	the 	price 	for 	their 	services. 	An
apprenticeship requirement, 	by 	its 	nature, 	is 	more 	susceptible 	to
misuse 	by 	incumbents 	who 	seek 	to 	reduce 	entry 	into 	a 	profession
than 	are 	reasonable 	testing 	or 	educational 	requirements 	that 	are
adopted 	and 	administered 	by 	the 	state 	itself. 	The 	Council 	may
wish 	to 	consider whether 	the 	objectives 	of 	the 	apprenticeship
requirement 	may 	be 	attained 	through 	a 	means 	that 	is 	less
susceptible 	to 	restricting competition, 	such 	as 	allowing
applicants 	to 	satisfy testing 	or 	education 	requirements 	as 	an
alternative. 	3D/ 	If 	the 	Council 	decides 	that 	the 	apprenticeship
requirement 	should 	be 	retained, 	it may wish 	to 	reconsider 	the
requirement 	that 	the 	apprenticeship 	be 	completed 	in 	South
Carolina. 	By 	opening entry 	into 	the 	professions 	to· persons 	who
receive 	their 	experience 	elsewhere, 	the 	state 	would 	diminish 	the
ability 	of 	incumbent 	embalmers .and 	funeral 	directors 	to 	block
entry 	into 	their 	professions 	and 	thereby 	to 	raise 	prices.
In 	addition, 	regula~ions of 	the 	state's 	Board 	of 	Funeral
Services 	provide 	that 	persons 	licensed 	as 	embalmers 	or 	funeral
directors 	in 	other 	states 	are-riot 	entitled 	to· obtain 	South
Carolina 	licenses 	on 	the 	basis 	of 	reciprocal 	agreements 	with
other 	states. 	~/ 	This" restriction 	appears 	to 	insulate 	further
South 	Carolina 	embalmers 	and 	funeral 	directors 	from 	competition.
Restrictions 	on 	the 	mobility 	of 	professionals 	have 	been 	found 	to
, 	~/ 	S.C. 	Code Ann. 	S 40-19-120.
~/ 	We 	note, 	for 	example, 	that 	South 	Carolina 	establishes 	a
shorter 	apprenticeship 	requirement 	for 	architects 	who 	meet
certain 	educational 	requirements 	than 	for 	those 	who 	do 	not. 	S.c.
Code 	S 40-3-60(2). 	While we 	believe 	that 	the 	adoption 	of 	state-
imposed 	educational 	or 	testing 	standards 	is 	preferable 	to 	the
imposition 	of 	an 	apprenticeship 	requirement, 	we 	are 	not 	qualified
to 	assess 	and 	do 	not 	assess 	the 	reasonableness 	of 	the
apprenticeship 	requirement 	for 	architects 	or 	the 	reasonableness
of 	any 	similar 	requirement 	for 	other 	professions 	discussed 	in
this 	letter.
~/ 	Regulations 	of 	Board 	of 	Funeral 	Services, 	S 57-11. 	It 	is
not 	clear 	whether 	this 	provision 	is 	intended 	to 	restrict 	the
application 	of 	S.C .. Code Ann. 	S 	40-19-100(2), 	which 	provides 	for
the 	admission 	to 	practice 	of 	embalmers 	and 	funeral 	directors
licensed 	by 	states 	with 	"substantially 	similar 	requirements" 	to
South 	Carolina's 	licensing 	rules.

George 	L. 	Schroeder 	-11-
lead 	to 	higher 	prices 	to consumers 	and 	higher 	incomes 	for 	the
restricted 	professional 	qroups. 	J2/
You 	should be 	aware 	that 	the 	FTC's 	Funeral 	Industry
Practices 	Rule 	~/ 	imposes 	certain disclosure 	requirements 	on
funeral 	providers 	in addition 	to 	those 	set 	forth 	in South
Carolina 	law .. South Carolina 	law requires 	funeral 	providers 	to
.tate 	a 	package 	price 	for 	the 	casket 	and 	other merchandise 	and
.ervices 	included 	in a 	funeral. 	Ji/ 	This 	kind 	of 	pricing 	is
permissible 	under 	the 	Commission's 	rule 	only 	if 	it 	is 	offered 	in
addition 	to, 	and 	not 	in 	lieu 	of, 	itemized 	price 	information. 	l2/
In 	addition, 	compliance with 	South 	Carolina's 	requirement 	that
the 	price 	be 	posted 	in the 	form 	of 	N a 	card or 	brochure 	in 	each
casket" :3.£/ 	would be 	insufficient 	to 	satisfy 	the 	requirement 	of
the 	Commission's 	rule 	that 	funeral 	providers 	furnish 	to 	consumers
a 	written 	casket 	price 	list, 	itemizing 	17 	specific 	funeral 	goods
and 	services, 	in 	a 	form 	that 	may 	be 	retained 	by 	the
consumers. 	31./
Finally, 	South 	Carolina 	law 	appears 	to prohibit persons
other than 	funeral 	directors 	from 	selling 	funeral
merchandise. 	JB/ 	For example, 	it would 	appear 	that 	cemetery
operators 	are 	prohibited 	from 	selling 	caskets. 	The 	FTC's 	funeral
, 	rule, 	in 	contrast, 	seeks 	to 	encourage 	competition 	in 	the 	sale 	of
funeral 	goods 	and 	services 	by 	prohibiting 	funeral 	providers 	from
conditioning 	the 	furnishing 	of 	any 	funeral 	good or 	service 	on 	the
purchase 	of 	any 	other 	funeral 	goods 	or 	services, 	except 	as
required 	by 	law, 	and 	thus 	allowing 	persons 	other 	than 	funeral
providers 	to 	sell 	funeral 	goods 	or 	services. 	~/ 	A limitation 	on
J2/ 	sae, 	~.g., 	Boulier, 	Influence 	of 	Licensure 	on 	Dentists 	in 	S.
Rottenberg, 	Occupational 	Licensure 	and 	Re~ulation 73 	(1980);
Pashigian, 	Occupational 	Licensin~ and 	the 	Interstate 	Mobility 	of
Professionals, 	22 	J.L. 	, 	Econ. 	1 	(1979).
JJ/ 	16 	C.F.R. 	Part 	453.
Ji/ 	S.C. 	Code Ann. 	S 	40-19-200. 	South 	Carolina 	law 	requires
funeral 	providers 	to 	state 	the 	items 	of 	individual 	funeral 	goods
and 	services 	only when 	those 	items 	are 	not 	offered 	in 	a 	single
package.
~/ 	16 	C.F.R. 	s 453.2(b)(2) 	- 	(6) .
.~/ 	S.C. 	Code Ann. 	S 	40-19-200.
J1/ 	16 	C.F.R. 	S 	453.2(b)(4).
ll/ 	S.C. 	Code. 	SS 	40-19-10(2), 	(3), 	(7),40-19-110,40-19-130.
~/ 	16 	C.F.R. 	S 	453.4(b).

George 	L. 	Schroeder 	-12-
the 	professions 	that 	may 	sell 	funeral 	merchandise, 	by 	limiting
the 	number 	of 	potential 	sellers, 	may 	lead 	to 	higher prices 	to
consumers. 	You may wish 	to 	consider whether 	this 	requirement
serves 	the 	interests 	of 	South 	Carolina 	consumers.
D. 	Board 	of 	Registration 	for 	Sanitarions
. 	South Carolina 	law 	prohibits 	registered 	sanitarians 	from
using 	solicitors 	to 	obtain patronage. 	iDl 	Competition 	among
, 	members 	of 	an 	occupation 	in the 	solicitation of 	business 	lowers
the 	search 	costs 	for 	consumers 	who may be 	interested 	in 	procuring
the 	services 	offered 	by 	that 	occupation. 	Solicitation 	is 	a 	form
of 	advertising, 	and 	restricting 	it 	may 	lead 	to 	higher 	prices.
The 	Commission's 	staff 	has 	studied 	the 	effects 	of 	restrictions 	on
advertising 	in the 	legal 	profession 	and 	found 	that 	such
restrictions 	were 	associated with 	higher 	prices 	to 	consumers. 	ill
You 	may wish 	to 	reevaluate 	the 	solicitation 	restriction 	in 	light
of 	the 	cost 	it could 	impose 	on 	consumers.
E. 	Boord 	of 	Social 	Work 	Registrotion
South Carolina 	law 	prohibits 	social 	workers 	from 	using
solicitors 	to 	obtain 	patronage. 	ill 	For 	the 	reasons 	stated 	with
respect 	to 	sanitarians, 	you 	may wish 	to 	reevaluate 	the 	costs 	and
benefits 	of 	this 	restriction.
F. 	Building 	Code 	Council
South 	Carolina 	law 	prohibits 	local 	jurisdictions 	from
drafting 	their 	own 	building 	codes 	and 	instead 	requires 	them 	to
adopt 	one 	of 	a 	number 	of 	specified model 	codes. 	ill 	There 	is
some 	evidence 	suggesting 	that 	the 	use 	of 	locally-drafted 	codes,
which 	often 	favor 	the 	interests 	of 	local 	suppliers 	or 	trade
organizations, 	may 	retard 	the 	adoption 	of 	innovative 	cost-saving
construction 	methods 	and 	may 	thereby 	increase 	the 	cost 	of
housing. 	~I 	For 	this 	reason, 	the 	present 	statutory 	requirement
~I 	S.C. 	Code Ann. 	5 	40-61-90(14).
~I 	Improying 	Consumer 	Access 	to 	Legal 	Services, 	supra 	note 	4.
ill 	S.C. 	Code 	S 40-63-110(14).
ill 	S.C. 	Code Ann. 	55 	6-9-10, 	6-9-60. 	Local 	jurisdictions 	may
receive 	permission 	to 	modify model 	codes 	to 	local 	needs 	upon 	a
showing 	that 	the 	authorized 	codes 	do 	not 	meet 	their needs 	Hdue 	to
local 	physical 	or 	climatological 	conditions 	.•••- 	S.C. 	Code
Ann. 	S 	6-9-60.
~I 	~, 	e.~., 	Keating, 	Stondards; 	Implicit. 	Explicit 	and
Mandatory, 	19 	Econ. 	Inquiry 	449 	(1981); 	Field 	& Ventre, 	Local
(continued ... )
,

George 	L. 	Schroeder 	-13-
, 	that 	local 	jurisdictions 	use 	only model 	building 	codes 	may 	serve
the 	interests 	of 	consumers. 	~/
Conclusion
We 	are 	pleased to 	have 	this 	opportunity to present 	our views
on occupational 	licensing 	statutes 	and 	regulations 	adopted by 	the
State 	of 	South Carolina. 	We 	suggest 	that 	the 	Council may 	wish 	to
reevaluate 	the 	costs 	and benefits 	of 	South Carolina's
occupational 	licensing 	programs. 	In 	particular, 	you 	may 	wish 	to
examine whether 	the 	two 	basic 	justifications 	for 	licensing 	-- 	the
need 	to 	cure 	a 	potential 	informational 	asymmetry 	and 	the 	need 	to
protect 	third parties 	from 	harm 	resulting 	from 	incompetent
professional 	services 	-- 	are 	applicable 	to each of 	the 	regulatory
programs 	that 	ve 	have 	analyzed.
We 	have 	also 	undertaken 	a 	review 	of 	the 	specific 	provisions
of 	the 	statutes 	and regulations 	that 	you 	have 	submitted. 	Our
analysis 	suggests 	that 	certain provisions 	in 	those 	statutes 	and
regulations 	could 	have 	anticompetitive 	effects. 	~/ 	The 	Council
may 	wish 	to 	consider 	alternatives 	to ~heBe provisions.
,
ii/( ... continued)
Requlation 	of 	Building: 	Agencies, 	Codes 	and 	Politics 	in 	~
Municipal 	Yearbook 	(1971).
~/ 	In 	a 	recent 	national 	survey of 	162 	cities, 	staff 	of 	the
Commission's 	Bureau 	of 	Economics 	found 	that 	only 	two 	of 	the
surveyed 	cities 	continued 	to 	u~e locally 	drafted 	codes. 	~ 	R.
Duke, 	Local 	Building Codes 	ond 	the 	Use 	of 	Cost-Soving 	Methods
Federal 	Trade 	Commission 	1989). 	The 	use 	of 	model 	codes 	appears
to 	be 	part 	of 	a 	national 	trend 	even without 	the 	compulsion 	of
state 	law. 	It 	is 	possible, 	however, 	that 	repeal 	of 	the 	statutory
requirement 	that 	model 	codes 	be used 	could 	result 	in 	the
increased use 	by 	local 	jurisdictions 	of 	potentially
anticompetitive 	local 	building 	codes.
~/ 	The 	staff 	has 	reviewed 	the 	statutes 	and 	regulations
governing 	nine 	regulatory 	agencies. 	In view 	of 	the 	volume 	of 	the
materials 	involved, 	it 	is 	possible 	that 	some 	potentially 	anti-
competitive provisions 	have 	escaped 	our 'attention. 	If 	the
Council 	has 	questions 	concerning 	provisions 	not 	discussed 	in 	this
letter, 	we 	encourage 	you 	to 	contact 	us 	for 	further 	review.