An economic analysis of national society of professional engineers versus United States

This dissertation is an analysis of an engineering society ethical code provision which prohibited members from participating in certain forms of price competition ("competitive bidding"). The Supreme Court in National Society of Professional Engineers held that the provision was a per se violation of the Sherman Act, and that its actual effects need not be considered. My analysis attempts first to identify and clearly define the problems which bidding may cause in markets where the costs of defining the "product" desired, and of inducing the producer to honor the terms of a largely implicit contract, are high. The role of the prohibition in addressing these problems is then developed. Three potential problems, and thus three roles for the prohibition, are presented, with emphasis placed on the "product and commitment definition" hypothesis presented in chapter 5. In it, competitive bidding is seen as a procurement procedure which does not provide an adequate opportunity for the client to define the product that he desires, or for the engineer to commit himself to providing a "high-quality" product. In an effort to protect the profession from bidding-related spillover costs, the society assumed the role of an authoritative spokesman who provided information to clients about the merits of various procurement procedures. As one component of the society's efforts, the prohibition functioned as an authoritative statement--a forceful means of communicating the society's collective judgment concerning the inexpediency of bidding procedures. As an alternative, the society encouraged the use of the "traditional method" which included an in-depth negotiation process through which product definition and engineer commitment develop gradually. Evidence is presented which indicates that the product definition problems predicted by the commitment definition hypothesis have occurred. Policy changes by several societies, after the NSPE ruling, are shown to be attempts to address these bidding-related problems. Since no evidence of any competitive harm was found, it is suggested that the prohibition should have been allowed under a Rule of Reason analysis. Suggestions for evaluating similar restraints are also presented.