# Regulators as competitors: when the rulemaker shapes the market
In 2015, the Centers for Medicare & Medicaid Services (CMS, the US agency running Medicare and Medicaid) quietly changed how it certified electronic health record systems. Within three years, dozens of small EHR vendors were gone, and a handful of large players, Epic and Cerner chief among them, controlled most of the hospital market. No antitrust lawsuit did that. A certification checklist did.
This is the lesson's core idea: regulators don't just referee competition, they often *are* competitors. When an agency sets a technical standard, a certification bar, or an approval pathway, it decides who can play the game at all. That is a form of market power most executives underestimate until it's used against them.
In classic market maps you have incumbents, challengers, suppliers, and distributors. In public sector and heavily regulated markets, add a fifth: the regulator, who can act less like an umpire and more like a player with its own preferences, budget pressures, and political mandates.
Three mechanisms give regulators this competitive leverage:
Each mechanism can be neutral on paper and still produce winners and losers in practice, depending on who had the resources to comply first.
The Health Information Technology for Economic and Clinical Health (HITECH) Act of 2009 created "meaningful use" incentives: hospitals got Medicare/Medicaid payments for adopting certified EHR technology. CMS and the Office of the National Coordinator for Health IT (ONC) then defined what "certified" meant, and repeatedly raised the bar across multiple rule stages.
Compliance meant investing millions in software re-engineering, testing, and documentation. Large vendors like Epic and Cerner (now Oracle Health) absorbed that cost and turned it into a moatmoatA lasting edge over competitors: a resource, capability or position they cannot easily replicate, letting a firm earn above-average returns over time.Voir la définition complète →. Smaller vendors either got acquired or exited. By around 2021, Epic and Cerner together covered a majority of US hospital beds by most industry estimates (exact share varies by source and year; see ONC's data briefs for tracked figures).
CMS never announced "we favor Epic." It just kept redefining the compliance bar in ways that rewarded scale. That is regulation acting as a competitive weapon, whether or not it was designed that way.
The Federal Communications Commission (FCC) controls the radio spectrum that mobile carriers need to operate. It allocates that spectrum through auctions, and the auction *design* itself picks winners.
Rules about license size (national blocks versus small regional ones), set-asides for smaller bidders, and payment schedules all determine whether a challenger like a regional carrier can compete with AT&T, Verizon, or T-Mobile. In the 2021 C-band auction, the FCC raised over $80 billion (a widely reported, verifiable figure from that auction), a sum only the largest carriers could realistically pay. Smaller players were structurally priced out before a single tower went up.
This is procurement-adjacent regulation: the FCC isn't a customer, but its allocation rules function like a gatekeeper deciding market entry, similar to how CMS reimbursement rules decide which healthcare products are commercially viable.
Regulators aren't neutral machines. They respond to:
None of this requires bad faith. It requires only that compliance costs money and time, and those two resources are distributed unevenly across a market.
| Player | Effect of tighter standards/certification |
|---|---|
| Large incumbents | Absorb compliance cost, gain moatmoatA lasting edge over competitors: a resource, capability or position they cannot easily replicate, letting a firm earn above-average returns over time.Voir la définition complète →, often welcome new rules |
| Small challengers | Priced out or acquired, unless rule includes explicit carve-outs |
| Suppliers (e.g., software, component makers) | Consolidate around whichever standard becomes dominant |
| Distributors/channel (e.g., hospitals, carriers' retail arms) | Locked into fewer certified options, less negotiating leverage |
| Regulator | Gains a simpler market to supervise, but risks reduced competition and innovation it may later have to correct |
The pattern to watch for, in any regulated market you analyze: who lobbied for the specific technical threshold, and who could already meet it? If the answer to both is "the incumbent," the standard is doing competitive work, not just safety work.
Vérification des acquis
1. What is the core idea behind describing a regulator as a 'fifth player' in a market map?
2. In the CMS EHR certification example, why did a technical certification change produce a consolidation effect similar to an antitrust action, even though no antitrust case was filed?
3. A company preparing to enter a heavily regulated sector wants to anticipate regulatory competitive risk. Which question best reflects the lesson's framework?
4. Select ALL correct answers about the three mechanisms through which regulators exert competitive leverage.
Sélectionnez toutes les réponses correctes.
5. Select ALL correct answers about why a regulation can be 'neutral on paper' yet still produce winners and losers in practice.
Sélectionnez toutes les réponses correctes.
If you work inside a regulated industry (healthcare, telecom, energy, finance), two practical implications follow.
If you're an incumbent: engaging early in rulemaking comment periods (in the US, via the Federal Register, which publishes proposed rules and hosts public comment) is a legitimate and common competitive lever. Shaping the technical detail of a standard before it's final is far cheaper than complying with a hostile one later.
If you're a challenger: watch for carve-outs, phased timelines, and de minimis thresholds (rules that exempt small players below a certain size or revenue). These are the mechanisms that determine whether you get a seat at the table or get regulated out of the market entirely. Trade associations representing smaller firms often exist specifically to fight for these exemptions.
For nonprofit and public sector professionals specifically: government grantmaking and eligibility rules work the same way. A foundation or agency that changes its eligibility criteria (minimum organizational budget, required certifications, geographic restrictions) is doing to the nonprofit sector exactly what CMS did to EHR vendors. The rule looks administrative; the effect is competitive.
🎬 [VIDEO: "How the FCC Spectrum Auction Works" - youtube.com - a short explainer on spectrum auction mechanics and why auction design determines who can compete in wireless markets]