A few days ago, Scott Greenfield once again raised a topic that gets everybody talking. (How does he do it? Volume!) He does it by publishing an unedited letter from a David Hiersekorn that is critical of Scott’s stance on marketing. Here’s the nut ‘graf:
In a nutshell, it appears that you believe you are significantly better than other attorneys, and you dislike lawyer advertising because it frustrates your ability to advertise your superiority free from other “lesser” souls making competing claims.
That seems like a dead-on summary of Scott’s attitude toward lawyers who are heavily into marketing, although I am less cynical about his motivation. I think he really wants to help potential clients avoid disaster.
Back when I was in college, I worked in the university’s computer center, and as each year’s graduation day approached, all the student employees would start printing their resumes. It was amazing the things they claimed to know. I supervised some of them and was familiar with the student experience, so I had a pretty good idea of their skills. I was years ahead of most of them and had a lot more practical experience, but you wouldn’t know that from reading their resumes. You’d figure it out if you hired them, though.
So I understand where Scott’s coming from. But I’m not sure I understand what Scott wants to do about it. It’s not clear to me whether he wants to tighten the rules on legal marketing, or if he is just wishing that people in his profession behaved themselves better. If the latter, he has my sympathy and encouragement. But if he wants greater regulation of the legal services market, I’m not so sure that’s a good idea.
People who think that support for a free market translates into a love of big business may be surprised to learn that the great economist Adam Smith once wrote,
People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.
In every line of business, sellers find it frustrating that other sellers of the same product will try to undercut their price. Market competition is great in theory, but it’s not much fun when someone else is doing it to you. All the sellers would be better off, they reason, if they could somehow put aside their competitive differences and agree not to undercut each other on price.
In other words, they’d like to form a cartel, an agreement among the various firms to limit competition. Sometimes a cartel is simply an agreement to fix prices, but it can take other forms. For example, the OPEC oil cartel sets production limits, and by limiting the supply of oil, they force buyers to bid up the price.
Cartels can also agree to allocate the market among the members. In a small town with two pizza restaurants, they can each make more money if they agree to split the town between them and not deliver to each other’s territory. This makes it easier to raise prices, because people who want a pizza have no where else to go.
Our budding pizza cartel faces three major difficulties. First of all, it’s against the law, so the cartel can’t be created and maintained using formal contracts.
Second, in part because the lack of legal status, it’s hard to keep members of the cartel from cheating: The pizza restaurants will sneak their drivers into their opponent’s territory to make a little extra revenue. OPEC has huge problems with cheating: When oil prices go up, the individual producers each see a chance to make a lot of money selling extra oil, but all that oil on the market just forces the price back down.
The third problem facing any cartel is new suppliers entering the market. In our town with the pizza cartel, the high price of pizza makes it very attractive for a third restaurant to open up and undercut both of the others. That drives the cost of a pizza right back down to the free market price.
All these barriers to cartelization—illegality, cheating, and new entry—can be overcome with one ingenious strategy: Lobby the government to create the cartel for you. This solves the illegality problem directly, but it also provides a way to enforce the cartel’s rules against cheaters and keep new competitors from entering the market.
Of course, the politicians and businessmen would never admit that, and they almost never create an obvious cartel. Instead, they structure the rules and barriers as a way to protect jobs by reducing ”unfair” competition (that has better prices for consumers) or, rather outrageously, as a way to protect consumers from inferior products, poorly trained personnel, and shoddy service. (To consumers eager to save money, of course, those are known as economy models, low-cost labor, and no-frills retail.)
For example, Wisconsin gas stations have managed to fix retail gasoline prices at no less than 9.2% above wholesale prices. If any station tries to sell gas cheaper, goons from the government show up to stop them.
When it comes to erecting protective barriers to entry into the market, governments are amazingly inventive. The silliest example I’ve heard of is the Lousiana Horticulture Commission which imposed strict licensing standards on florists. Ostensibly to protect people from bad floristry, these rules really existed to atificially limit the number of florists in the state, allowing them to raise prices.
Legal barriers to entry are not usually that outrageous. Often there is some genuine measure of consumer protection, as with licensing of medical doctors: Despite the economic cost of cartelization-through-licensing, we’re probably better off allowing only licensed surgeons to perform heart surgery.
Even then, there are hints of protectionism: Sure, we need licensed physicians for major health problems, but do we really need a full-fledged doctor to remove a wart or stitch up a minor wound? (The U.S. military doesn’t.) Couldn’t routine medical checkups be done by someone with a lot less training than an M.D.? Similar arguments can be made for architects, interior designers, engineers, accountants, lawyers, private investigators, barbers, cosmetologists, massage therapists, and all the other licensed professions.
Barriers to entry restrict competition, harming customers, and harming competing firms that operate on different business models—usually upstart firms trying to compete in new ways.
What does all this have to do with Scott Greenfield’s dislike for legal marketing? Simply put, advertising restrictions are a subtle form of cartelization. By limiting what lawyers can say to their customers, they make it harder for customers to comparison shop and harder for new lawyers to enter the market. This drives up profits for established lawyers at the expense of clients and newer lawyers.
I’m not accusing Scott of harboring ulterior motives. I’m sure he’s sincere in his belief that advertising misleads clients into choosing lawyers who are inadequate for their needs. If he’s right—if advertising restrictions do some good by keeping the scoundrels and asshat lawyers from promising the moon to every client—then the real question is whether the benefits of the advertising restrictions outweigh the costs of cartelization.
A good answer to that question depends on details about the lawyering business that are beyond me. My gut feeling is that advertising is good for customers of transactional lawyers, especially those providing business services. It forces the lawyers to compete on price and service, and the damage from getting a lawyer who’s cheap-and-worth-it is controllable.
On the other hand, people charged with serious crimes have a lot more to lose if their lawyer screws up, so misleading marketing is more likely to harm them. We need to ask, however, if there’s a better way to find lawyers, why aren’t these people using it? And if we restrict lawyer advertising, how do we know these people will choose a better way to find a lawyer instead of a worse one?
So, while I sympathize with the desire for greater professionalism in law, and I hate being slimed by salesmen, I’m not sure there’s anything we can do about it that would actually improve the public welfare.
But we can still mock it when we see it.