Regulation And Deregulation

Question 1

What is regulation?

Answer 1

Regulations are a form of gov intervention in markets
- gov appoint regulators who can impose, for example, price controls in most of the main utilities, such as telecoms, electricity, gas and rail transport
- may also be used to introduce fresh competition into the market (e.g. breaking up the existing monopoly power of a service provider) - known as market liberalisation

Question 2

What are some examples of regulation?

Answer 2

• minimum age from buying cigarettes or alcohol
• fishing quotas
• recycling directives
• national minimum wage
• equal pay act

Question 3

What are some of the problems that regulators of markets can face?

Answer 3

• hard to find evidence of anti-competitive behaviour
• lack of spoken or written evidence
• conflicting or asymmetrical info
• complex info
• conflicting evidence - e.g. may be market forces or collusion in an oligopoly
• fear of fines means there is strong incentive to conceal collusion
• lack of regulator power or regulator resources
• also risk of regulatory capture (acting in the firms interest instead of the consumers)

Question 4

What is deregulation?

Answer 4

Involves removing gov legislation and laws in a particular market. Often refers to removing legal barriers to competition. - e.g. allowing new firms to enter markets and reduce the monopoly power of these state owned industries.

Question 5

What are some advantages of deregulation?

Answer 5

• increased competition, so greater efficiency, leading to lower costs and prices and more choice for consumers
• gov regulation often involves excessive costs of bureaucracy - reducing this can save a lot of money

Question 6

What are some disadvantages of deregulation?

Answer 6

• difficult to create effective competition in an industry which is a natural monopoly - high barriers to entry
• e.g. in a local bus market, deregulation can lead to a duplication of services and the problem of congestion. Local buses with more than one firm can create problems. Also new firms will seek to cherry-pick the most profitable routes and times and less out the unprofitable off-peak services.