Smile! The Dentists Lose a Monopoly

by on February 26, 2015 at 7:20 am in Economics, Law, Medicine | Permalink

Yesterday, the Supreme Court ruled (6:3) in North Carolina State Board of Dental Examiners v. FTC that the attempt of the state board of dental examiners to exclude nondentists from the practice of teeth whitening violated the Sherman antitrust act.

mouth1The opinion, written by Justice Kennedy, is especially lucid. Here, from Kennedy, are the key facts:

Starting in 2006, the Board issued at least 47 cease-and desist letters on its official letterhead to nondentist teeth whitening service providers and product manufacturers. Many of those letters directed the recipient to cease “all activity constituting the practice of dentistry”; warned that the unlicensed practice of dentistry is a crime; and strongly implied (or expressly stated) that teeth whitening constitutes “the practice of dentistry.” App. 13, 15. In early 2007, the Board persuaded the North Carolina Board of Cosmetic Art Examiners to warn cosmetologists against providing teeth whitening services. Later that year, the Board sent letters to mall operators, stating that kiosk teeth whiteners were violating the Dental Practice Act and advising that the malls consider expelling violators from their premises.

These actions had the intended result. Nondentists ceased offering teeth whitening services in North Carolina.

The FTC then brought suit, arguing that the action was anti-competitive. The case raises constitutional issues because the states are allowed to violate the federal antitrust acts, as will inevitably happen in the ordinary use of their powers. The question then became whether the NC State Dental Board was invested with enough state authority to overcome the antitrust provisions. On the one hand, the principles of federalism say leave the states alone. On the other (Kennedy quoting Justice Stevens in Hoover v. Ronwin):

“The risk that private regulation of market entry, prices, or output may be designed to confer monopoly profits on members of an industry at the expense of the consuming public has been the central concern of . . . our antitrust jurisprudence.”

In my view, the majority deftly navigated the tradeoff. The court said that North Carolina can, without question, decide that teeth whitening is the practice of dentistry but they have to do so more or less explicitly–they can’t simply put the fox in charge of the hen-house by deferring the decision to the dentists.

In other words, the court raised the cost of rent-seeking. If the dentists want to monopolize the practice of teeth whitening they will have to make that case to the legislature and not rely on the unilateral actions of a board composed almost entirely of dentists and created for entirely different purposes.

As Kennedy put it in language reminiscent of bootleggers and baptists:

Limits on state-action immunity are most essential when the State seeks to delegate its regulatory power to active market participants, for established ethical standards may blend with private anticompetitive motives in a way difficult even for market participants to discern. Dual allegiances are not always apparent to an actor. In consequence, active market participants cannot be allowed to regulate their own markets free from antitrust accountability.

Addendum: I, along with a number of other GMU scholars, was part of an Institute for Justice BRIEF OF AMICI CURIAE SCHOLARS OF PUBLIC CHOICE ECONOMICS IN SUPPORT OF RESPONDENT. Congratulations are due to the excellent team at IJ, as the brief seems to have been influential.

By the way, the dissenting opinion (Alito, Scalia, Thomas) appears to accept the logic of our brief to an even greater extent, so much so that they shrug their shoulders at the rent seeking as business as usual (I especially enjoyed the dig at the FTC as also being subject to regulatory capture). Thus, the dissenters focused entirely on the federalism question. I respect that approach but I think that as federalism stands today, the majority’s balancing approach is likely to lead to better policy.

1 Max February 26, 2015 at 8:09 am

Amusing. Government agency acts to benefit consumers against an industry cartel, right wing economist praises everyone (including right wing judges who voted *against* the decision), except the government agency, reserving only mockery for them (“dig at FTC … regulatory capture”).

2 John Thacker February 26, 2015 at 8:31 am

The FBI brings corruption cases against local and state pols and police departments that abuse their power. And yet I do think that the FBI is subject to abusing its power as well, and suspect that a wholesale replacement in local police forces with the FBI would only federalize the abuse. Quis custodiet ipsos custodes and all that.

3 Adam February 26, 2015 at 8:12 am

The FTC brought this case under the FTC Act, not the Sherman Act.

4 John Thacker February 26, 2015 at 8:29 am

IANAL, but this case seems at least somewhat related to the nondelegation doctrine, typically regarded as close to a dead letter, but making a comeback in a pending case.

5 Pensans February 26, 2015 at 8:50 am

Professionals are not mere market participants.

6 JWatts February 26, 2015 at 10:27 am

“Professionals are not mere market participants.”

No, indeed not, generally they pretty much control their portion of the market. Or at the least have a great deal of influence over it. Often to the monopolistic guild level.

7 Benny Lava February 26, 2015 at 8:58 am

Curious that the three dissenters are the three most conservative members of the court, no?

8 A Definite Beta Guy February 26, 2015 at 9:31 am

No. Why would it be? North Carolina can make any laws it damn well pleases. So simple as to be unremarkable.

9 JWatts February 26, 2015 at 10:28 am

Indeed, why would anyone consider this “curious” or remarkable at all?

10 Adrian Ratnapala February 26, 2015 at 11:56 am

Judges have political leanings, but their judicial philosophies are more important to them.

The choice of philosophy is correlated with, but not identical to political preference. Very, very, roughly, the leftish justices are more deferential to federal agencies, less interested in states rights and more likely to interpret the law in the light of policy.

In this case the whole court agrees that delegating state power to a private cartel is taking the piss. From considerations the above, it is not surprising that the left thinks Feds are allowed to stop the states from taking the piss, while the right is less sure.

11 Art Deco February 26, 2015 at 9:07 am

In other words, the court raised the cost of rent-seeking.

You don’t know many dentists, do you? Dentists have taken to cosmetic work of dubious utility because they’re having trouble making a living. The ‘rents’ are theoretical.

12 Urstoff February 26, 2015 at 9:24 am

Let us weep for the dentists.

13 Art Deco February 26, 2015 at 10:54 am

They’re one of those professional groups that do manifestly useful things. Although I’ve heard complaints about dentists (by an old school dentist upset at the direction the profession has gone), no dentist has ever let me down. The only provider I appreciate more is the Auto Club. It does bother me that dentists are having trouble earning a living and psychotherapists are not.

14 Urstoff February 26, 2015 at 5:19 pm

Define “earn a living”. Is the median wage of a dentist below the median wage of the US as a whole?

15 Thomas February 26, 2015 at 10:00 pm

I don’t think this is true. Anecdotal: one dentist just moved to town and his rental application listed 240k in salary (~6x median household income in city). Anecdotal: dental work in Mexico (PV) has terrific quality at about one fourth of the price in my locality.

16 bob February 27, 2015 at 11:50 am

I agree. The dentist I know are rich. Often more so than even Doctors.

17 Brett February 26, 2015 at 11:43 am

I’ve noticed that too*, although trying to keep teeth whitening as a comparatively expensive “dentist’s only” service is probably the wrong way to go about it. They’d be smarter to do regulatory capture in a more subtle way, by trying to ensure that they get a cut out of others doing the business (i.e. “a dentist must be in a supervisory role” even if he or she isn’t actually present when the service is done).

* Well, I’ve noticed it in the sense that dentists seem to be trying to push more stuff on you as of late.

18 Art Deco February 26, 2015 at 1:12 pm

That’s my dentist friend’s complaint. He said he’s seen some scandals in his practice, which is to say patients who came to him for a second opinion when they were recommended elaborate and expensive work by other dentists, very little of it to their actual benefit. Come to think of it, he advised me in 1998 when a dentist I saw on an emergency basis recommended a root canal (“what? no, that’s the last resort”). He’s also a critic of teeth whitening, though he did advise his daughter in law when she wanted it done. Another of his complaints concerns dental implants: the incremental benefit is insufficient to compensate for the risk of tissue rejection. He says the state of dentistry nowadays is such that your hygienists are booked up, but you’ve got time on your hands.

19 Peter Metrinko February 26, 2015 at 9:08 am

These anticompetitive state board rules have been under attack by the FTC for a long time, under both liberal and conservative chairmen (including when free market economist James C. Miller was the chair). Circuit Courts for a few decades now have ruled in favor of the FTC. There are many legal theories under which a particular suit by the FTC against a state (or state board) will get to the Supreme Court — different wrinkles if you will. The wrinkle here was that the board of examiners were direct competitors, and that “even assuming the Board had acted pursuant to a clearly articulated state policy to displace competition, the Board is a “public/private hybrid” that must be actively supervised by the State to
claim immunity.” Compare to Ticor, where the regulatory board was rubber stamping complex rate requests by the title insurers.

I was happy to be associated with the FTC’s winning side in two similar cases, and (Ticor Title Insurance).

20 Bill February 26, 2015 at 9:56 am

Correct. This follows a long bipartisan analysis and limitation of the state action antitrust exemption. It is not an unusual case, and the result is not unexpected either.

21 Brett February 26, 2015 at 11:45 am

I’d like laws that at least let you sue these rules/licensing regimes in court and demand that they be proven to be of the public benefit, and not simply as a way to improve the incomes of market incumbents. When they do end up in court, the bad ones often end up losing – there was a case here in Utah where the cosmetologist licensing board went after a poor woman who was doing a hair-braiding business, and they ended up losing in court over it.

22 John Thacker February 26, 2015 at 9:42 am

The dissent also reminds me of Kagan’s dissent (joined by the same three conservatives, I believe) in the fish case also decided at the same time. She said that the anti-shredding law was extremely stupid and symptomatic of overcriminalization, but that as written she believed it did cover fish.

23 Adrian Ratnapala February 26, 2015 at 12:02 pm

Scalia and Thomas agreed with her, but Alito wrote a concurred with the majority. He did however write a separate concurrence on what I’ve heard were narrower grounds the rest.

24 Ray Lopez February 26, 2015 at 9:48 am

This is indeed a victory for consumer choice, congrats AlexT. That said, consider this:

In the Philippines there are ‘street dentists’ who will fill cavities for about $12. As far as I can tell, from my friends who have gone there, they do a competent job. But their equipment is old, they are sometimes elderly dentists, and the depend on volume, and I think they are aggressive in treatment (my assumption). They don’t have X-ray equipment. You can go to a ‘western style’ dentist for about $30 to $100. So the choice is yours. I like to pay a little more for a sort of factor of safety. But I’ve gone to these street dentists and asked them: “do you think I have a caries / cavity’? And if they say ‘yes’, then I go to the ‘western style’ dentist who does the work. My assumption is that the western style dentist is a little more careful in saving the tooth. Caveat emptor.

25 Jeff February 26, 2015 at 10:30 am

Thank God for ‘liberal’ justices. Conservatism has been and will remain the political ideology rent-seeking, it seems.

26 JWatts February 26, 2015 at 1:12 pm

“Conservatism has been and will remain the political ideology rent-seeking, it seems.”

Rent seeking is largely bi-partisan and there’s plenty of examples of Liberal groups and politicians colluding to protect and promote their own economic interests. And, in any case, the conservative judges didn’t object to protect the Dentists. They objected on the grounds of it being an internal state issue and not something the Feds should be involved with.

27 Shane M February 26, 2015 at 3:16 pm

If there were 2 more dissenters would the dentist lobby have won?

28 Thomas February 28, 2015 at 3:51 am

I don’t think so. Some dissenter would have ‘dissented’ in a concurring opinion to ensure the decision.

29 BC February 26, 2015 at 10:10 pm

Subtle difference though: had the conservative judges prevailed, dentists’ rent-seeking would have only been allowed in North Carolina. Other states’ residents could still reject such rent seeking. When liberal judges protect rent seeking, it tends to protect it at the federal level, making it much more difficult for individual states to opt out.

30 fwiw February 27, 2015 at 7:43 pm

Good points, all above, but/and I’d just like to point out that rent-seeking practices are much more affordable at lower levels of government.

31 Thomas February 28, 2015 at 3:52 am

How is that the case? The most expensive purchase most people make is their home. It seems to me that homes are incredibly local.

32 Art Deco February 26, 2015 at 1:13 pm

He says, voting for the administration which will grant you waivers (for a suitable campaign contribution).

33 ladderff February 26, 2015 at 10:45 am

Thus, the dissenters focused entirely on the federalism question. I respect that approach but I think that as federalism stands today, the majority’s balancing approach is likely to lead to better policy.

With friends like these, federalism needs no enemies.

34 prior_approval February 26, 2015 at 11:11 am

‘I, along with a number of other GMU scholars’ have invested in teeth whitening clinics in NC.

OK, not really – but only because people with real money rarely bother acquiring tenure. They just acquire people with tenure to represent their interests.

35 Obsession February 26, 2015 at 11:56 am
36 Art Deco February 26, 2015 at 1:14 pm

I take it you were fired for cause.

37 required February 26, 2015 at 3:28 pm

North Carolina only needs to extend the definition of “removing stains” to include “teeth whitening.”

38 Steve Sailer February 26, 2015 at 3:28 pm

What’s the deal with orthodontists, anyway? They get paid like doctors, but they don’t have to field emergency calls at all ours.

39 Pat Boyle February 26, 2015 at 7:32 pm

Is this a real story? If so what’s the point? You can buy tooth whitener over the counter with a kit that will allow you to apply it your self. The only real problem is that if you have a cap that’s a different color you may need a dentist to change it to match you new bleached teeth.

40 Andre February 26, 2015 at 11:30 pm

Well if you followed Scalia’s point to the end then couldn’t the board ban the sale of over the counter tooth whiteners? What would stop them from doing so

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