Regulatory Reforms to Enhance Competition: Recommendations for Implementing Executive Order 13725

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by Sofie E. Miller, Daniel R. Pérez, Susan E. Dudley & Brian Mannix
May 11, 2016

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Regulation & Competition

Since the formation of the U.S. federal regulatory system, regulations have had a significant influence on marketplace competition. Regulations often seek to improve competition by restraining monopolies; others tend to reduce competition by establishing one-size-fits-all standards for consumer products or acting as nontariff barriers limiting competition from foreign trade partners. Recognizing the importance of this relationship, on April 15th President Barack Obama signed an Executive Order instructing federal agencies to identify and address barriers to competition. This Executive Order provides agencies with a valuable opportunity to reevaluate existing rules that create barriers to competition.

According to EO 13725, promoting competitive markets can ensure that “consumers and workers have access to the information needed to make informed choices.” The new Executive Order encourages executive branch agencies to contribute to this goal by engaging in “pro-competitive rulemaking and regulations, and by eliminating regulations that create barriers to or limit competition.”[1]

The Council of Economic Advisors (CEA) recently published an Issue Brief discussing both the benefits of competition and several indicators that suggest a consistent decline in the level of competition within the U.S. economy.[2] The Brief focuses on instances where government agencies can intervene in the market to prevent anticompetitive behavior by firms (e.g., colluding with rivals), but also mentions that agency interventions can be the source of reduced competition. Competition is important for incentivizing long-term productivity growth and raising the standard of living for society; its benefits for consumers include more choices of products at higher quality and lower prices. Competition can also lead to increased wages as firms compete to attract and retain workers from the labor market.

The federal government has a long track record of issuing regulations that create barriers to competition. While it was intended to curb natural monopolies, the economic regulation that prevailed prior to the mid-1970s was the “principal cause” of monopolies in the telecommunications and transportation sectors.[3] Federal rulemaking has largely moved past the prescriptive economic regulations of the last century—however, many social regulations still have the side-effect of limiting competition by acting as barriers to entry or reducing the number of product options available to consumers. Regardless of the motivation for regulating an industry, there is a strong tendency for the details of regulation to reflect influence, and often the interests, of the industry’s largest incumbents. Consumers’ interests (which are more likely to be taken into account in an open, competitive marketplace) do not always get their due in the regulatory process. This Insight suggests several areas of regulatory policy where federal regulations have hindered, rather than helped, competition, and recommends that agencies take this opportunity to reduce these regulatory barriers to competition.

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[1]  Executive Order 13725. “Steps to Increase Competition and Better Inform Consumers and Workers to Support Continued Growth of the American Economy.” April 15, 2016. Available at: https://www.whitehouse.gov/the-press-office/2016/04/15/executive-order-steps-increase-competition-and-better-inform-consumers

[2]  Council of Economic Advisers Issue Brief. “Benefits of Competition and Indications of Market Power.” April 2016. Available at: https://www.whitehouse.gov/sites/default/files/page/files/20160414_cea_competition_issue_brief.pdf

[3]  Susan E. Dudley. “President Obama’s Competition Executive Order Could Benefit from a History Lesson.” The George Washington University Regulatory Studies Center. April 19, 2016. Available at: https://regulatorystudies.columbian.gwu.edu/president-obama%E2%80%99s-competition-executive-order-could-benefit-history-lesson


See also:

Commentary: President Obama’s Competition Executive Order Could Benefit from a History Lesson, by Susan E. Dudley