In order to learn more about the impact of entry regulations on small businesses, I watched a presentation by experts on food industry regulation at the American Enterprise Institute. The discussion introduced ideas about the nature of anti-competitive regulation that appear applicable to many industries.
The first panelist was Doug Povich, founder of the Food Truck Association of Metropolitan Washington and lawyer-turned lobster truck owner. Povich discussed the heavy regulation of food trucks in the area, citing laws such as the “ice cream truck rule”, which states that a food truck is not allowed to stop on the side of the road unless a line has already formed on the sidewalk. When the line dissipates, the truck has to move and stop somewhere else. This rule is not exactly conducive to doing business, or maintaining the flow of traffic for that matter.
Food trucks need to be regulated to ensure that they follow health codes, right? Absolutely, and they are already required to obtain certification from the DC Department of Health to operate in the city. Health and safety regulations are perfectly justifiable for the protection of consumers, but it is tough to see how forcing food trucks to drive around the block every time their line dies down protects anyone.
Povich is quick to point out that the National Restaurant Association has been the largest lobbying force behind the preservation and enforcement of food truck regulations. Restaurants in the DC area view the growing number of independently operated food trucks in the city as a threat to business and have increasingly pushed for new regulations on food trucks that are completely unrelated to public health and safety. For example, many municipalities prohibit food trucks from operating within a certain distance of restaurants that serve the same kind of food. The goal of such regulations is not to protect consumers, but instead to protect restaurants from competition and restaurant owners are not shy about admitting it.
The Restaurant Association argues that anti-competitive regulations are necessary to level the playing field, complaining that food trucks don’t pay rent. In fact they do; they must pay to park their trucks in special places that allow safe loading and unloading.
When restaurants lost the argument on competitiveness as a justification for regulation, they switched to the need to manage public space, arguing that food trucks jockeying for position disrupt the flow of traffic. Their proposal was to grant four-hour permits on a first-come first serve basis. The only result aside from further inconvenience for food trucks was that trucks spent more time jockeying for space, as they had to move every four hours even when in compliance with the ice cream truck rule.
The takeaway is that producer-sought regulation is a major threat to free market competition. Major producers in industries with low barriers to entry have a tendency to create artificial barriers in order to limit competition. The Restaurant Association lobbies for regulations that make it difficult for smaller competitors to compete in the market, just as monopolist owners of taxicab companies lobby for licensing regulations to keep innovators such as Uber at bay and Monsanto secures legislation protecting itself from the legal scrutiny faced by competitors.