Could the DOJ and FTC Reform Regulations that Harm Competition?

Cite this Article
Eric Fruits, Could the DOJ and FTC Reform Regulations that Harm Competition?, Truth on the Market (May 28, 2025), https://truthonthemarket.com/2025/05/28/could-the-doj-and-ftc-reform-regulations-that-harm-competition/

When many think about monopolies and unfair business practices, they typically picture large corporations squashing smaller rivals. But there’s another significant culprit restricting competition that gets far less attention: government regulations themselves. 

The Trump administration has in recent weeks taken the first steps toward reining in some of these regulations. The U.S. Justice Department (DOJ) and Federal Trade Commission (FTC) have both convened proceedings seeking public input on regulations that harm competition. The requests were so expansive that it would be easy to conclude the agencies were asking for a “wish list.”

Toward that end, the International Center for Law & Economics (ICLE) submitted detailed recommendations revealing how extensively government rules can undermine the markets they’re meant to protect.

This isn’t a new concern. Dating back to English common law and America’s founding era, anti-monopoly traditions were often focused on limiting government-granted exclusive privileges, rather than scrutinizing successful private businesses. Since at least the 1600s, monarchs have granted favored merchants exclusive rights to sell certain goods, creating artificial monopolies that harmed consumers. Today’s regulatory landscape creates similar problems through different mechanisms.

The Permission-Slip Economy

Consider trying to start a new natural gas pipeline, hospital, or telecommunications service. In many cases, you can’t simply raise capital and begin operations—you need government permission in the form of a “certificate of convenience and necessity” (CCN). These certificates are supposedly designed to ensure adequate service and prevent wasteful duplication of infrastructure.

In practice, CCNs often function as barriers to protect existing companies from competition. The approval process typically allows current market players to argue against new entrants, effectively giving competitors veto power over potential rivals. Imagine needing McDonald’s approval before you could open a Burger King nearby, and you’ll understand the problem. Now, imagine needing an existing hospital’s approval before opening a new outpatient surgery center, and you’re talking about a big deal. 

CCNs’ “competitor’s veto” provisions make it extremely difficult for innovative or more efficient companies to enter markets, even when consumers would benefit from additional choices or lower prices.

The Licensing Trap

Another major barrier comes from occupational licensing—government requirements that workers obtain permits before practicing their trade. While licensing makes sense for professions that involve significant public-safety risks (like medicine or engineering), it has expanded far beyond these areas. Today, many states require licenses for florists, interior designers, hair braiders, and other occupations where the safety risks are minimal or nonexistent.

These licensing requirements create several problems. They raise costs for workers who must pay fees and complete training programs before starting their careers. They make it harder for people to change professions or move between states with different requirements. And they often reduce competition, increasing consumer prices without meaningful safety benefits.

The Obama administration found: “[T]he evidence on licensing’s effects on prices is unequivocal: many studies find that more restrictive licensing laws lead to higher prices for consumers. In 9 of the 11 studies we reviewed… significantly higher prices accompanied stricter licensing” and “Stricter licensing was associated with quality improvements in only 2 out of the 12 studies reviewed.”

The requirements are frequently pushed by existing practitioners who want to limit new competitors, rather than by genuine safety concerns. For example, a “sunrise review” is a process used by state legislatures to evaluate the potential impact of proposed new occupational regulations before they are enacted. The Institute for Justice reports that occupational and professional associations initiated at least 83% of sunrise reviews, while consumer advocates were behind only 4%.

Legal Immunity for Anticompetitive Behavior

Perhaps more surprisingly, federal law exempts certain industries from antitrust rules that prohibit price-fixing and market division. These exemptions cover some agricultural cooperatives, aspects of professional sports leagues, and other sectors. The exemptions essentially give these industries legal permission to engage in conduct that would be criminal if practiced by other businesses.

These special privileges aren’t fully based on sound economic reasoning but often result from successful lobbying efforts. They distort markets and allow some groups to restrict competition in ways that ultimately harm consumers through higher prices or reduced innovation.

When Government Competes Unfairly

Sometimes, the government itself enters markets as a competitor, while maintaining special legal privileges for itself. The Tennessee Valley Authority, which provides electricity across multiple states, illustrates this problem. When government-owned businesses compete against private companies while remaining immune from antitrust laws, they can engage in anticompetitive practices without consequences.

This creates particular problems in emerging markets like broadband internet. Local power companies affiliated with government entities control utility poles that internet providers must access. When these same power companies offer internet services, they may have incentives to delay or block competitors’ access to essential infrastructure. Because of their government status, they often can’t be challenged under normal antitrust laws.

Inflating Public-Project Costs

Federal and state prevailing-wage laws require contractors on government-funded projects to pay predetermined wage rates, supposedly to ensure fair compensation for workers. But these rates are often calculated using flawed methods and tend to mirror union wages, even in areas where most workers aren’t unionized.

The result is artificially inflated costs for public-construction projects like schools, roads, bridges, and other infrastructure. These higher costs mean taxpayers get less value for their money, and non-union contractors often can’t compete for public work even if they could complete projects at lower cost. Ironically, these laws originated partly from discriminatory efforts to protect white workers from competition by Black and immigrant laborers.

Energy-Market Distortions

Federal efforts to increase competition in electricity transmission have backfired in instructive ways. FERC Order No. 1000 was intended to create more competitive processes for building major transmission lines. Instead, it has created a complex, centralized planning system that often delays projects and discourages needed investment.

The problem stems from trying to engineer competition through regulatory mandates, rather than allowing market forces to operate naturally. The result has been fewer transmission projects and higher costs—the opposite of the intended outcome.

Agency Overreach

Even the agencies responsible for protecting competition sometimes create anticompetitive problems through their own policies. The FTC’s recent blanket ban on noncompete agreements exemplifies this issue. While some noncompete clauses may harm workers and competition, others serve legitimate purposes, such as encouraging companies to invest in employee training.

Similarly, expanded data-privacy rules and complex merger-filing requirements, while well-intentioned, can impose disproportionate costs on smaller businesses and discourage beneficial business combinations that pose no competitive threats.

When Lawsuit Settlements Distort Charitable Markets

A more subtle form of government-enabled market distortion occurs through the misuse of “cy pres” awards. The cy-pres, or “next best,” doctrine permits funds from cash settlements in class actions to be directed to third parties—typically, charitable organizations with missions ostensibly related to the lawsuit’s claims—rather than to class members themselves. While traditionally used for residual funds that remained after compensation attempts, cy pres has increasingly been employed as a primary distribution mechanism when class members are deemed hard to identify, or when per-member compensation would be minimal.

In 2009, the DOJ Civil Rights Division adopted a policy of directing leftover settlement funds—those not distributed to direct victims—to third-party charities. This marked a significant shift as, prior to this, such cy-pres distributions were rare in federal government settlements.

The policy was intended to ensure that unclaimed funds from civil-rights settlements were used to benefit communities or causes related to the underlying case, rather than reverting to the U.S. Treasury or remaining undistributed. Since then, the government’s policy has flip-flopped with each change in administration, with the first Trump administration rescinding the guidance, the Biden administration reinstating it, and the second Trump administration again rescinding it.

While this might sound benign, these awards can significantly distort competition among nonprofit organizations and advocacy groups. Courts and lawyers essentially pick winners in the charitable sector, directing millions of dollars to favored organizations without regard to their effectiveness, the preferences of the actual class members, or competitive merit. This creates an unfair advantage for recipient organizations over their peers, who must rely on voluntary donations and grants.

The problem becomes particularly pronounced when settlement funds repeatedly flow to the same organizations, or those with connections to attorneys involved in the lawsuit. These recipients gain resources that allow them to expand operations, hire more staff, and increase their influence—not because they’ve demonstrated superior performance in serving their missions, but because they received court-ordered windfalls. This government-directed resource allocation undermines the competitive dynamics that typically drive nonprofit organizations to improve their effectiveness and respond to donor preferences.

The Path Forward

These problems aren’t inevitable. The same agencies asking for input on anticompetitive regulations have the authority to challenge many of these barriers in court or advocate for their elimination. 

ICLE’s recommendations aim to encourage dismantling or reforming these unnecessary barriers and reorienting regulatory and enforcement priorities toward sound economic principles and the consumer-welfare standard. This includes specific calls to eliminate or scale back CCNs and occupational licensing and to reevaluate and curtail antitrust exemptions. Furthermore, ICLE recommends that the FTC refine its rules and enforcement actions by rescinding the overly broad noncompete-agreement rule.

Like the child who wishes for a pony but would be content with a puppy, ICLE’s recommendations may be aspirational. But if this administration moves the needle on just a few of these issues, it will be taking a step toward removing regulatory barriers to competition.

The key is recognizing that effective competition policy must look beyond private business conduct to examine how government rules themselves affect markets. When regulations create barriers to entry, protect incumbents from competition, or impose unnecessary costs, they ultimately harm the consumers, workers, and entrepreneurs that competition policy is supposed to protect.

True competition policy requires treating government-created barriers with the same skepticism we apply to private anticompetitive conduct. Only by addressing both sources of market distortion can we create an economy that genuinely serves consumers through innovation, efficiency, and competitive pricing.