Abstract
Regulation of professional service markets is typically and traditionally justified because of the existence of some form of market failure, the remedying of which is in the public interest. The market for legal services is especially characterised by information asymmetry, in that there is a disparity between the knowledge of the professional providing the service, and the average consumer of legal services.
Two main problems arise from information asymmetry. First, if consumers cannot judge quality (legal services are usually thought to be a credence good-see Darby and Karni ), they will be less willing to pay high prices for those services. As a result, high-quality, high-cost providers may be forced out of what becomes an unprofitable market, leading to adverse selection, or the “race to the bottom” or a “lemons” market. A second problem to arise out of the market failure of the professional services market is moral hazard, whereby professionals, once selected, may be tempted to over-supply both quality and quantity in order to charge higher prices (supplier-induced demand). Because the market for legal services is subject to these market failures, it has been felt that the market should not be left to itself to control legal service provision. Consequently, the legal profession has been characterised by numerous restrictions which elsewhere would be regarded as anti-competitive but which are justified as being in the public interest in this context. These are, most notably:
1) Restrictions on Entry;
2) Restrictions on Advertising and promotion of competition;
3) Regulation of fees;
4) Restrictions on Organisational Form.
In this Report we examine the relaxing of some of these restrictions in three English speaking European jurisdictions: England & Wales, Scotland and Ireland. In each of these jurisdictions the regulation of the market for legal services has been liberalised over the last 30 years to varying degrees.
Two main problems arise from information asymmetry. First, if consumers cannot judge quality (legal services are usually thought to be a credence good-see Darby and Karni ), they will be less willing to pay high prices for those services. As a result, high-quality, high-cost providers may be forced out of what becomes an unprofitable market, leading to adverse selection, or the “race to the bottom” or a “lemons” market. A second problem to arise out of the market failure of the professional services market is moral hazard, whereby professionals, once selected, may be tempted to over-supply both quality and quantity in order to charge higher prices (supplier-induced demand). Because the market for legal services is subject to these market failures, it has been felt that the market should not be left to itself to control legal service provision. Consequently, the legal profession has been characterised by numerous restrictions which elsewhere would be regarded as anti-competitive but which are justified as being in the public interest in this context. These are, most notably:
1) Restrictions on Entry;
2) Restrictions on Advertising and promotion of competition;
3) Regulation of fees;
4) Restrictions on Organisational Form.
In this Report we examine the relaxing of some of these restrictions in three English speaking European jurisdictions: England & Wales, Scotland and Ireland. In each of these jurisdictions the regulation of the market for legal services has been liberalised over the last 30 years to varying degrees.
| Original language | English |
|---|---|
| Title of host publication | Service Liberalization in Europe |
| Subtitle of host publication | Case Studies |
| Editors | Aymo Brunetti, Sven Michal |
| Place of Publication | Berne |
| Publisher | State Secretariat for Economic Affairs |
| Pages | 117-162 |
| Number of pages | 45 |
| Volume | 2 |
| ISBN (Print) | 9783907846605 |
| Publication status | Published - 11 Sept 2007 |
Publication series
| Name | Swiss State Secretariat for Economics (SECO) |
|---|---|
| Publisher | SECO |