“The North Carolina Board of Dental Examiners was established under North Carolina law and charged with administering a licensing system for dentists. A majority of the members of the board are themselves practicing dentists. North Carolina statutes delegate authority to the dental board to regulate the practice of dentistry, but did not expressly provide that teeth whitening was within the scope of the practice of dentistry. Following complaints by dentists that non-dentists were performing teeth-whitening services for low prices, the dental board conducted an investigation. The board subsequently issued cease and desist letters to dozens of teeth-whitening outfits, as well as to some owners of shopping malls where teeth-whiteners operated. The effect on the teeth-whitening market in North Carolina was dramatic.”
Many would argue that it is obvious that dentists should serve on the board of the system that licenses dentists, since they have the expertise to certify quality. Given the information in this chapter, aside from ensuring quality, why else might dentists find it in their interest to control the licensing system?
a. Existing or current dentists can use the licensing system as a barrier to entry to new dentists, thereby restricting labor supply and ensuring earnings that are higher than would occur under a more competitive, open labor market.
b. Current dentists would be more aware, but new dentists less aware, of how little the average dental patient knows about the services he or she really needs. Requiring a license for new dentists helps patients to overcome the information problem, which has been made worse over the past decade or so with the increase in information over the internet.
c. The licensing requirement increases the availability of dental substitutes (like the teeth whiteners), and current dentists want to ensure a variety of substitutes since it increases their individual marginal revenue.
d. The existing dentists would use their market power to reduce the demand for their own services, thereby increasing the demand and workload for new dentists. Since the new dentists would be required to have a license, it would increase the demand for their services more than the demand for dentists who received their licenses many years ago.
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Why do you think there were complaints and an investigation that teeth were being whitened “for low prices?”
a. The licensed dentists were fearful of the growing market power and high prices of the unlicensed non-dentists. The board conducted its investigation in hopes of increasing competition in the market for dental services.
b. The current licensed dentists are able to enjoy some market power because of the licensing system. The availability of unlicensed teeth whiteners increases dental substitutes and reduces the market power of current licensed dentists, thus pushing the dentists’ prices (and profit) down.
c. The board of dental examiners wanted to determine whether the low cost of the whitening was due to low quality or incompetent work being performed by the unlicensed non-dentists. The board would be equally likely to investigate a licensed dentist who was performing services at a cheaper cost than his or her competitors.
d. The licensing board wants to ensure a fair return for all dental services, and presumed that unlicensed teeth whiteners were likely setting their prices below cost. Doing so would ultimately lead to losses and exit from the industry, and the licensing board exists to protect all those who provide dental services, licensed or not.