When a business is unable to open in a certain location, it’s not uncommon to anecdotally hear things like, “They wanted to open there, but Walmart blocked them” or “The town just did not want another supermarket.”
But what exactly does that mean? And, perhaps more importantly, is there any merit to these types of statements?
“Whether we realize it or not, when we say things like that, we’re talking about zoning and the idea that commercial zoning can be used in some really anti-competitive ways,” says William Bunting, assistant research professor of legal studies at the Fox School.
Bunting explores this topic in his new paper, Curbing the Anticompetitive Impact of Commercial Land Use Regulation: A Procedural Approach, which was recently accepted for publication in the Villanova Law Review.
According to Bunting, when municipalities prevent businesses from opening in a certain area, they will cite zoning ordinances, arguing as possible justification, for example, that the new business could create excess traffic congestion and/or noise.
In other cases, the municipality may argue that the business is just not needed, citing a lack of demand. All of these factors play a role in why zoning ordinances often can be looked at as having an anti-competitive impact.
“Cities will say things like, ‘We don’t need two gas stations,’ but how can they really say that? People who want to open up businesses want to do this for a reason, and they likely spent lots of time researching it. If someone is proposing to open a business, it’s probably for a good reason, and it’s because their research has shown them that it can be profitable,” Bunting says.
America is a free market, an economic system in which prices are determined by unrestricted competition between privately owned businesses. But it could be argued that zoning ordinances often create the opposite situation.
For instance, in his piece, Bunting outlines how many municipalities have enacted zoning provisions to prevent “green zones,” which forbid any cannabis dispensary from opening within a set distance. That’s essentially the case locally in Philadelphia, as well.
“Effectively, cannabis has been zoned out of the jurisdiction. A map shows where you’d want to locate a cannabis dispensary, and it’s basically nowhere,” Bunting says.
In his paper, Bunting notes that claims regarding the impact that zoning has on anti-competitiveness are likely not going to subside soon. He ultimately concludes that governments would be wise to adopt an administrative procedure, grounded in notions of due process and the legitimate exercise of zoning power, to reduce the frequency with which local governments place restrictions on commercial land use. He suggests the introduction of the concept of an “economic impact statement,” which would be used when a municipality denies a business from opening due to a zoning ordinance.
“The purpose of the impact statement would not be to prove the magnitude of anti-competitive harm, but simply to illustrate the extent to which the zoning action restricts where the business can locate spatially within the jurisdiction,” Bunting says. “If the business owner successfully establishes anti-competitive impact, then the burden would shift to the municipality to justify the anti-competitive zoning.”
Thus, whenever a business is prevented from opening, this ultimately begs the question: is government regulation helping or hurting consumers?