I've heard several people say that it's illegal for the US government to compete with private industry. The specific context was about developing and providing software (desktop programs, mobile apps) that would be a direct competitor to products that are already available on the commercial market.

I tried to do some research to find the official wording of this law or policy, but couldn't find anything. I did find that Sen. Thune is trying to introduce S.506 - Freedom from Government Competition Act but it doesn't seem that Act has been passed/enacted at this time. So, are there currently rules about this?

  • 1
    Isn't this precisely what the United States Postal Service does with UPS, FedEx, DHL, etc?
    – Ron Beyer
    Commented May 31, 2018 at 19:24
  • 2
    @RonBeyer Actually, the USPS has a legal monopoly on mail delivery and UPS, FedEX, DHL, etc can only legal compete in areas that have been held to be outside that monopoly like parcel deliver and express courier services.
    – ohwilleke
    Commented Jun 2, 2018 at 6:14
  • In the specific case of "developing and providing software", the inclusion of works of government in the "public domain" may be highly relevant.
    – Ben Voigt
    Commented Sep 30, 2021 at 19:19

4 Answers 4


It is generally speaking, not illegal for the US government, at any level, to compete with industry. (There may be some specific exclusions, especially at lower levels). In fact, it does compete with private industry in multiple fields.

In general, however, government does not compete with private industry, as a policy, because the government does not care about making money (insert comment about budget deficits here).

A small, and incomplete, list of ways government competes with private industry in the US:

  1. Unemployment, Disability, and (low income) Medical Insurance, with the added bonus of the government forces you to participate (e.g. SSI).

  2. Subsidized housing, for various forms of people, competing with private real estate development.

  3. Formerly, a postal and delivery service(credit to Ron Beyer).

  4. Security Services (e.g. the Police).

  5. Worker Resources (e.g. hiring people out of the private sector).

  6. Providing public roads (competes with private toll roads) and public transportation (ferries, buses, trains) which compete directly and indirectly with private transportation industries.


The federal government is not prohibited by the United States Constitution from competing with private industry, and indeed, does so in many instances.

This said, there are a mish-mash of statutes and regulations that limit specific kinds of government competition with private industry, and legislators often decline to compete with private industry as a matter of policy.

For example, there are laws that limit the way that the federal government can use the services of prisoners in federal prisons to compete with private industry. Many states have similar prohibitions which is one of the reasons that many of the stereotypical prison industries, like making license plates, are industries that do not have private sector competition.

There are also laws that prohibit competition with government industries. For example, the Tennessee Valley Authority has a government monopoly on the generation of hydroelectric facilities in its jurisdiction, and the United States Postal Service, in theory, has a monopoly on the delivery of ordinary mail as opposed to express courier services and packages. Similarly, the federal government, in theory, has a monopoly on the issuance of currency not backed by precious metals.

There are some states, Colorado among them, whose state constitutions prohibit competition between state government agencies and the private sector, although these constitutional prohibitions are commonly interpreted in such a way as to not bar state government from participating in industry sectors like education, prisons, and hospitals, where government provision of services has historically had a large market share of the industry.


The TVA Cases seem to have established in practice, although perhaps not fully in legal theory, that the Federal Government may compete with private enterprise.

Specific laws may prohibit or restrict such competition in particular fields, as other answers suggest.

In TENNESSEE ELECTRIC POWER CO. et al. v. TENNESSEE VALLEY AUTHORITY et al. 306 U.S. 118 (1939) it was argued by a group of companies that generated and distributed electric power that the US Federal government, in creating the Tennessee Valley Authority (TVA) and, through the TVA, competing with them in the creation and distribution of electric power, was acting unlawfully. The appellants claimed that their property was being taken, contrary to the Takings clause of the Fifth amendment, that the policy of the TVA amounted to federal regularization of matters properly under state control, and that the act creating the TVA was unconstitutional as being outside the enumerated powers of Congress. The made some other claims as well.

The US Supreme Court denied that the appellants had standing to challenge the overall constitutionality of the act. On all other issues, the Court ruled against the appellants on the merits. It discussed extensively the issue of competition by the government or a government-sponsored entity. It held that such competition is lawful, does not amount to a taking of property, and does not constitute regulation of rates simply by providing services at lower competing rates.

In the earlier related case of Ashlwander v. Tennessee Valley Authority 297 U.S. 288 (1936) the Court held that the construction of the Wilson Dam was lawful under the War and Commerce powers, and that disposal of the power generated by it was also lawful.

In The TVA Cases: A Quarter Century Later by George D. Haimbaugh Jr (Indiana Law Journal: Vol. 41 : Issue 2 , Article 2. Available at: https://www.repository.law.indiana.edu/ilj/vol41/iss2/2) Haimbaugh writes on page 200 of Tennessee Electric Power Company v. TVA.:

Again avoiding the broad constitutional issue, the United States Supreme Court, dividing five to two, affirmed the dismissal on the ground that the complainants had no right to be free from competition and therefore had no standing to maintain the suit

On page 201 Haimbaugh writes:

The pith of the TVA cases was a challenge to the national government's constitutional power to compete with private enterprise. The Supreme Court which had not faced that problem directly before did not answer it in those cases. It avoided passing on the validity of the valley-wide competition in which Congress had authorized the TVA to engage by denying the utilities' standing to sue.

The TVA cases offer, in Brandeis' concurrence in Ashwander, the best known formulation of the proposition that

The Court has developed, for its own governance in the cases confessedly within its jurisdiction, a series of rules under which it has avoided passing upon a large part of all the constitutional questions pressed upon it for deci3ion."' {297 U.S. 288, 341, 346 (concurring opinion)}

So, it may be argued that the decisions in Alabama Power and Tennessee Electric which turned on lack of standing were not constitutional determinations but instances of judicial discretion. The more widespread view, however, would seem to be that Tennessee Electric Power, at least, has amounted to a constitutional development and perhaps was a case in which the Court, to paraphrase Mr. Justice Jackson, should have tried to lay inevitable constitutional controversies to early rest.{Jackson, THE STRUGLE FOR JUDICIAL SUPREMACY 305-06 (1941)}

On page 202 lists as among the doctrines established by these cases:

The decision in Tennessee Electric goes even further than that in Alabama Power and decides that the non-exclusive franchise offers no protection against direct federal competition which is illegal only because it violates the Federal Constitution. {52 Harv. Law Rev. 686 (1939)}

On page 204 Haimbaugh writes further

The Supreme Court's refusal to grant standing to the complainants in Alabama Power and Tennessee Electric left unanswered the question of competition by the Federal Government beyond that in which it was engaged at Wilson Dam. The Court in Ashwander had found the production of electricity to be a necessary incident to the making of munitions of war or the operation of works for navigation purposes, and the sale of such power to be a reasonable disposition of the property thus come by. The Ashwander opinion suggests that a determination of the validity of federal competition with private utilities as presented in the later TVA cases would have entailed definitions of (1) the relationship of such activity to the exercise by the Federal Government of enumerated powers, and (2) the scope of its property power.


This may be what youre thinking of:


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    Commented Jan 1, 2021 at 11:59

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