OIRA Directs Agencies to Consider Competition Effects When Developing Regulations

In a new document, Guidance on Accounting for Competition Effects When Developing and Analyzing Regulatory Actions, the Office of Information and Regulatory Affairs (OIRA) encourages executive agencies to consider the effects on competition of any potential regulations, including compliance costs and barriers to entry and exit. Unlike other recent changes by OIRA designed to amplify claimed benefits and downplay the costs of regulation, this guidance attempts to encourage free and open market competition. To be sure, the guidance, in places, bows to some progressive priorities, such as on labor and tech, and could be improved in some significant respects. Nonetheless, if further refined and implemented faithfully, this guidance should improve the overall quality, and perhaps even reduce the quantity, of regulations across the government. 

At a high level, OIRA encourages agencies to reduce the impact of regulation on competition, and specifically, “to develop regulatory alternatives that enhance competition more (or burden competition less) as they explore available policy approaches.” As the guidance recognizes, regulations can reduce the number of competitors or improperly advantage some over others, such as by erecting artificial barriers to entry or by raising compliance costs. In the past, for instance, patients had to see a specialist to purchase a hearing aid, a requirement that limited market entry, but in 2022, the Food & Drug Administration relaxed this requirement, leading to broader accessibility to hearing aids at a lower cost. 

To address competition concerns, the guidance encourages agencies to consider a number of topics as part of the regulatory decision-making process. Agencies should ask whether an action would “induce a change in the number or range of competitors,” such as by granting exclusive rights or imposing geographic restrictions, and whether a proposal would “raise or lower the cost of entry or exit.” Agencies also should consider whether an action would “limit or enhance the ability of firms to compete” and “weaken or strengthen the incentives for firms to compete vigorously.”  For instance, would a regulation impose standards or costs that disproportionately harm or benefit some firms but not others? How would a regulation affect switching costs and the availability of information to consumers? These are the exact types of questions that agencies should be asking to drive better policy. 

If agencies embrace this guidance, they ultimately should propose better, and probably fewer, regulations.  For example, OIRA encourages agencies to consider general performance standards that allow firms flexibility in how to achieve them: “technical requirements...may entrench the market power of incumbent firms or prevent entry by firms with innovative products...” OIRA also correctly points out that licensing and permitting requirements can reduce the number of competitors and workers and that “[p]rice controls may reduce competition by limiting the ability for firms to enter the market with a higher-quality, higher-price offering.” 

Still, the guidance document misses some opportunities to address other topics. For instance, the guidance fails to discuss the cumulative effect of multiple, costly regulations on innovation. At some point in the process for developing a proposed rule, the federal government should require an agency to consider the cumulative burdens on competition that are or could foreseeably be imposed by that rule and other, overlapping proposed and final regulations – not only that agency’s own regulations, but relevant regulations issued or proposed by other agencies.

Moreover, the guidance document embraces various progressive policy priorities that impose needless costs on the business community without attendant benefits for workers or consumers.  Parroting the Federal Trade Commission and Department of Justice’s Antitrust Division, OIRA asserts that “[d]igital markets require special consideration in light of common features such as network effects, platform operators who are also platform participants, and the use of platform data to confer competitive advantages. In these markets, competitive harms may manifest in dimensions such as job amenities, consumer privacy, or data security, in addition to consumer prices and workers’ wages.” The guidance fails to appropriately define what market definition qualifies as a “digital market,” support its statement with any discussion, or explain why agencies should ignore regulatory costs in these markets.

In the same vein, the guidance document also appears to improperly elevate the interests of labor unions over the welfare of workers. Among other things, the guidance document encourages agencies to ask whether a proposal would “impact the ability of workers or employers to bargain over wages or terms of employment.” Indeed, OIRA expressly advises agencies to consider “access to labor union representation.”  OIRA should not promote the interests of labor unions instead of the interests of all workers, as well as consumers and the business community. Regulatory costs affect everyone. 

The business community, as well as workers and consumers, should welcome this guidance, despite some shortcomings, as a sensible way to evaluate the impact of regulatory costs on competition and to better ensure that agencies take such costs into account in making decisions. In the context of specific agency rulemaking proceedings, businesses may wish to consider relying on this document, and the principles discussed therein, to highlight a proposal’s potential impact on the competitive process, including disproportionate costs. If improved and implemented faithfully, OIRA’s latest guidance document could help to improve the regulatory process across the federal government.  

About the authors

Sean Heather

Sean Heather is Senior Vice President for International Regulatory Affairs and Antitrust.

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