Because licensing limits market competition, its effects are similar to those just discussed for legal monopolies. In fact, economists refer to such a restriction of a market to a small number of sellers as oligopoly (from oligo=few). Like legal monopolies, business licensing typically gives rise to higher consumer prices, lower-quality goods and services, inefficient business methods, exclusion of would-be sellers from their means of livelihood, and black markets. A significant practical effect of the licensing of taxicabs, commuter van services, cosmetologists, and similar businesses is that less wealthy businesspeople, often members of minority groups, are deprived of potential productive careers. On behalf of such victims, one law firm, aptly named the Institute for Justice (www.ij.org), has successfully mounted several legal challenges to business licensing and similar coercive policies since 1991.

From another point of view, business licensing can itself be viewed as a legal monopoly on the function of consumer product accreditation. Like any other compulsory monopoly, it tends to provide a lower-quality (or more costly) product to the consumer than would a free-market provider of such consumer service.