Deregulation and the Lawyers' Cartel

39 Pages Posted: 29 Jun 2021 Last revised: 16 Oct 2021

See all articles by Nuno Garoupa

Nuno Garoupa

George Mason University - Antonin Scalia Law School, Faculty

Milan Markovic

Texas A&M University School of Law

Date Written: June 23, 2021

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.

Keywords: Alternative business structures, law firms, legal markets, law and economics, comparative law, European Union, legal profession, lemon problem

JEL Classification: K00

Suggested Citation

Garoupa, Nuno and Markovic, Milan, Deregulation and the Lawyers' Cartel (June 23, 2021). University of Pennsylvania Journal of International Law, Forthcoming, George Mason Law & Economics Research Paper No. 21-16, Texas A&M University School of Law Legal Studies Research Paper 21-30, Available at SSRN: https://ssrn.com/abstract=3872974 or http://dx.doi.org/10.2139/ssrn.3872974

Nuno Garoupa

George Mason University - Antonin Scalia Law School, Faculty ( email )

3301 Fairfax Drive
Arlington, VA 22201
United States

Milan Markovic (Contact Author)

Texas A&M University School of Law ( email )

1515 Commerce Street
Fort Worth, TX 76102
United States
817-212-4056 (Phone)

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