Abstract
The European Commission Report on Competition in Professional Services found that recommended prices by professional bodies have a significant negative effect on competition since they may facilitate the coordination of prices between service providers and/or mislead consumers about reasonable price levels. Professional associations argue, first, that a fee schedule may help their members to properly calculate the cost of services avoiding excessive charges and reducing consumers’ searching costs and, second, that recommended prices are very useful for cost appraisal if a litigant is condemned to pay the legal expenses of the opposing party. Thus, recommended fee schedules could be justified to some extent if they represented the cost of providing the services. We test this hypothesis using cross-section data on a subset of recommended prices by 83 Spanish bar associations and cost data on their territorial jurisdictions. Our empirical results indicate that prices recommended by bar associations are unrelated to the cost of legal services. Therefore, we conclude that fee schedules are not playing the role of providing useful cost information to practitioners and therefore this efficiency justification is weak.
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Notes
Professional Associations are often under the scrutiny of antitrust authorities. For instance, the Report of the Spanish antitrust authority, Comisión Nacional de la Competencia, on the professional services sector and associations, 2008, states that 10 % of the total number of competition cases has been associated with practices of Professional Associations.
See Arruñada (2006) on organizational patterns of professional services as a response to information asymmetries and external effects.
These rights are enshrined in most European constitutions. See for example, Articles 17.3 and 24 of the Spanish Constitution.
Another instance of the efficiency of joint production of private and public services are notaries. See Arruñada (1996).
Article 1.1 of the Spanish Competition Law, with a content similar to Article 101.3 of the European Union Treaty.
Garoupa and Gómez Pomar (2008) explain differences in pricing behavior by law firms.
However, it is unlikely that a fee schedule is able to prevent or discourage practitioners from offering low quality services; in fact, fixed prices may even discourage effort or investment in human capital since a higher quality will not be reflected in the price of the service.
In fact, the Spanish Competition Authority has filed cases against Bar Associations who were preventing outside-the-jurisdiction lawyers from practicing the profession in their geographical areas.
See Patterson et al. (2003). In Spain firms in this sector are particularly small. According to the Service Sector Annual Survey (Instituto Nacional de Estadística) in 2007 there were 99,445 firms and the number of lawyers was 151,537.
In Appendix 1, we give the list of bar associations in Spain, the province, the region and the number of members.
Prices are published in the web pages of Professional Associations. See also http://www.lextools.net for a collection of recommended prices by type of service and for each association.
We also performed the analysis selecting only the largest bar per province (that is, 52 bars) and the results were similar to those presented in the text.
In Appendix 2, we provide a detailed description of each service considered.
There are other expenses such as communications, transportation, restaurants, cafés and hotels. However, it is unlikely that they significantly affect the final price of a service.
Hourly labor costs data were obtained from Instituto Nacional de Estadística (INE) “Encuesta Trimestral de Coste Laboral” for the service sector, 2010.
Data on the prices of urban land in the different provinces were obtained from Ministerio de la Vivienda, 2010.
The data on cost of membership were provided by the bar associations.
Data on the frequency of different legal services were obtained from “La Abogacía Española en Datos y Cifras 2008” Consejo General de la Abogacía Española.
See, Informe sobre el libre ejercicio de las profesiones (1992), Tribunal de Defensa de la Competencia pp. 59–61; and Commision Report on Competition in Professional Services, 9.2.2004, COM (2004) 83 final, 37–39.
References
Arruñada, B. (1996). The economics of notaries. European Journal of Law and Economics, 3(1), 5–37.
Arruñada, B. (2006). Managing competition in professional services and the burden of inertia. In C.-D. Ehlermann & I. Atanasiu (Eds.), European competition law annual 2004: The relationship between competition law and the (Liberal) professions (pp. 51–71). Oxford and Portland Oregon: Hart publishing.
Colombo, L., & Grillo, M., (2007) Collusion-enhancing institutions in dispersed oligopolies mimeo ISNIE.
European Commision, Report on Competition in Professional Services, COM (2004) 83 final.
Garoupa, N., & Gómez Pomar, F. (2008). Cashing by the hour: Why large law firms prefer hourly fees over contingent fees. Journal of Law Economics and Organization, 24, 458–475.
Grillo, M. (2002). Collusion and facilitating practices: A new perspective in antitrust analysis. European Journal of Law and Economics, 14(2), 151–169.
Patterson, I., Fink, M., & Ogus, A. (2003). Economic impact of regulation in the field of liberal professions in different member states: Regulation of professional services. DG Competition: Study for the European Commission.
Acknowledgments
Financial support from MICINN (ECO2009-09120 and ECO2012-35820), Gobierno Vasco (DEUI, IT-313-07) and UPV/EHU (GIU09/23) is gratefully acknowledged.
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Appendices
Appendix 1
See Table 5.
Appendix 2: Description of legal services
Ordinary civil suit It applies to private law disputes included in article 249 of the Civil Procedure Law. In general, any proceedings with an amount exceeding € 6,000 and other cases considered in the article not exceeding that amount. To calculate the cost of the proceedings we have assumed that the level of economic interest claimed is € 20,000.
Unfair dismissal suit Legal procedure initiated by an employee who has been fired without cause under one of the appropriate legal requirements for dismissal. To calculate the cost of the proceedings, we have assumed that the compensation for the worker is € 40,000.
Oral proceedings It applies to private law disputes included in art. 250 of the Civil Procedure Law. In general, all proceedings that have a value of less than € 6,000 and other cases covered by the article even when exceeding that amount.
Separation by mutual consent Marital separation proceedings in which the spouses agree on the settled conditions.
Contested divorce Dissolution of a marriage where the spouses have not agreed on settled conditions and ultimately the judge must set the final agreement.
Injunction Special civil action taken to quickly obtain an enforceable court decision. In order to be filed, the action must meet the requirements of article 812 of the Code of Civil Procedure.
Statement of intestate heirs Proceedings to declare inheritors where the deceased has left no will. When calculating the cost of the proceedings, it is assumed that there is no opposition from anyone.
Exchange trial Special procedure for collection of bills, checks and promissory notes. When calculating the cost of the proceedings, it is assumed that the amount of the title is €1,000.
Expropriation Procedure by which the administration takes over a private property when there exists a social interest and without the consent of the owner. When calculating the cost of the proceedings, it is assumed that the price of the expropriated property is €20,000 and that parties agree on the price.
Abbreviated administrative procedure Proceedings before the administrative court, faster and simpler than the ordinary proceedings in the cases considered in article 78 of the Administrative Jurisdiction Act. In general, it can only be used for very specific issues and when the amount does not exceed €13,000. When calculating the cost of the proceedings, we have assumed that the level of economic interest claimed is €6,000.
Misdemeanour trial Criminal proceedings that is followed when the defendant is accused of having committed a misdemeanor. The misdemeanors are less serious than crimes. We have included the cost of assistance and intervention in the trial.
Bankruptcy Procedure to be followed as a result of the insolvency of a person or a company. We consider the price to be charged to the creditor if the amount of the debt is €20,000.
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Ciarreta, A., Espinosa, M.P. & Zurimendi, A. Are bar associations anticompetitive? An empirical analysis of recommended prices for legal services in Spain. Eur J Law Econ 38, 471–484 (2014). https://doi.org/10.1007/s10657-012-9367-7
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DOI: https://doi.org/10.1007/s10657-012-9367-7