Regulation of Markets

8 Key excerpts on "Regulation of Markets"

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  eBook - PDF

  21st Century Economics: A Reference Handbook

  • Rhona C. Free(Author)
  • 2010(Publication Date)
  • SAGE Publications, Inc

    (Publisher)

  In the United States (the primary focus in this chapter), there are two primary methods that government has adopted to impact business behavior and market out-comes. The first is referred to as competition policy, or antitrust policy. Competition policy tries to promote eco-nomic efficiency through rules, or codes of conduct, for firm behavior that are designed to restore the market to a competitive, or near competitive, outcome. It is not so much that monopolies are deemed illegal under competi-tion policy, but rather it is more the attempt by a firm or group of firms to monopolize an otherwise competitive market that tends to trigger a government response. In many respects, competition policy tends to be reactive, in that it is prompted by legal challenges to a firm's observed behavior designed to garner market power when competi-tion would otherwise exist. Competition policy is a vast field in economics and is beyond the scope of this chapter. This chapter focuses primarily on direct regulation. Direct regulation is more preemptive in nature. Rules for market outcomes are established by the government. Prices are set, capital investments are subject to oversight, market entry is limited, and often certain types of produc-tion processes are mandated. Such regulation tends to override market outcomes that would have arisen without any such rules. From the perspective of most economists, who would generally prefer that the market allocate resources, the fact that regulation substitutes for market outcomes can be justified only if the market is indeed sub-ject to failure. After a brief review of the regulatory history of the United States, the economic reasons for regulation as well as common types of regulation are reviewed. However, because the economic prescriptions for market failures have not been followed closely in practice, a more formal review of the incentives of regulators to regulate is consid-ered.

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  Export-Oriented Industrialisation

  The ASEAN Experience

  • Mohammed Ariff, Hal Hill(Authors)
  • 2012(Publication Date)
  • Taylor & Francis

    (Publisher)

  1 For one thing, regulation—like protection—affects manufacturing performance and export growth: directly, as regulation affects the international trade sector, and indirectly, through its effect on industrial efficiency and international competitiveness. For another, the nature and extent of regulation varies enormously within ASEAN. As we shall see, the most important difference concerns not the ‘amount’ of regulation but rather the type of such intervention. Singapore and Indonesia again constitute the extreme cases. Both governments intervene extensively in the economy. But in Singapore, which has a small and efficient bureaucracy, intervention generally enhances the operation of market forces. By contrast, regulation in Indonesia generally impedes the operation of market forces and reduces efficiency.

  It will be useful to begin with some definitions. In the previous chapter, the concepts of nominal and effective protection were clear and unambiguous, despite serious data limitations. In the case of regulation, however, it is quite the contrary. Not only are the usual data deficiencies present, but there are also formidable conceptual problems. There is no single satisfactory definition—much less measure—of economic regulation. At a general level, regulation refers to a system of administration, involving laws and decrees issued by governments to firms and households. In the case of economic regulation, we are interested not only in its definition, but also its nature, extent and economic consequences. According to Koch (1980 : 435):

  Although any rule or law might easily qualify as government regulation of economic activity, economic regulation as used here refers to the comprehensive rules, instructions, procedures, and attention that a government regulatory commission imposes upon a certain market.

  Pincus and Withers (1983 : 10) adopt a more general definition:

  A regulated industry is one which is ‘more subject to direct control by government authorities, and less to the natural forces of supply and demand’. The degree of regulation … depends on the extent to which government specifies in detail what otherwise would have been left to voluntary decisions.2

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  Competition Law and Economic Regulation

  Making and Managing Markets

  • Niamh Dunne(Author)
  • 2015(Publication Date)
  • Cambridge University Press

    (Publisher)

  2 Regulation has been a recurring feature of Western market economies for centuries, long before 1 Stewart (1988:128) suggested that advocates of deregulation have either ‘a profound faith in the virtues of competitive market allocations or a deep scepticism about government’s ability to deal with market failures’. 2 Hovenkamp (2005:228); Clarke (2000:3–4). 139 enactment of the earliest antitrust statutes. 3 Regulatory practice has historically been cyclical, indicating greater or lesser confidence in the robustness of free markets (or governments). 4 The past fifty years or so have witnessed tumultuous developments with respect to regulation in many economies: from a high point of regulatory activity in the 1960s, through emphatic and sustained calls for deregulation in the 1980s, to a more ambivalent modern attitude encompassing knowledge of both regulatory and deregulatory failures, including renewed recognition of the necessity of certain regulation following the Global Financial Crisis (GFC) at the end of the last decade. Clarke described as a paradox of capitalism’s success that ‘it owes its very survival to regulatory and state intervention and yet it continues to rail at it as an unjustified burden and interference in the sacred freedom of the market’. 5 On the one hand, sector-specific regulation offers, in theory, a promising mechanism to address market defects, allowing regulators to craft tailored remedies that address market problems directly and facilitating on-going and context- sensitive market oversight.

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  Business, Government and Globalization

  • Owen E. Hughes, Deirdre O'Neill(Authors)
  • 2008(Publication Date)
  • Red Globe Press

    (Publisher)

  What is regulation? There are so many forms of regulation that a universal definition initially seems elusive. The OECD (2000, p. 9) defines regulation 64 as ‘the diverse set of instruments by which governments establish requirements for enterprises and citizens’. Regulations thus include ‘laws, formal and informal orders, subordinate rules issued at all levels of government, and rules issued by non-governmental or self-regulatory bodies to whom governments have delegated regulatory powers’. This definition is supported by Gow and Maher (1994, p. 114) who define regulation as the rules ‘effected by departments and statutory authorities through the use of statutes and subordi-nate legislation (including regulations, rules, by-laws and ordi-nances)’, and Weidenbaum (2004, p. 32) who defines regulation as ‘agency statements that implement, interpret, or prescribe a law or policy’. Other definitions of regulation focus upon the role of regulation in constraining economic activity. Majone (1996, p. 9) defines reg-ulation as ‘rules issued for the purpose of controlling the manner in which private and public enterprises conduct their operations’, while Vogel (1996, p. 9) sees regulation as ‘public control over private sector behaviour’. Stigler (1975, p. 145) has a similar focus, describing the regulatory agency as ‘an inevitable instrument in the public control of industries, occupations, and other particular branches of economic activity’. The emphasis on the role of the regulatory agency, as suggested by Weidenbaum and Stigler, supports Majone’s view that there are different understandings of regulation on either side of the Atlantic. In Europe, ‘there is a tendency to identify regulation with the whole realm of legislation, governance and social control’ (Majone, 1990, pp. 1–2).

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  Reshaping Markets

  Economic Governance, the Global Financial Crisis and Liberal Utopia

  • Bertram Lomfeld, Alessandro Somma, Peer Zumbansen(Authors)
  • 2016(Publication Date)
  • Cambridge University Press

    (Publisher)

  In my opinion, the only truly non-market concept of economic action that demands our continued attention is that of Karl Marx. By discussion of the central problems of Marx’ s economics, I hope to support the claim that the market economy is the best form of general economy. One of the results of this will, paradoxically enough, be to restate the kernel of sense in the concept of deregulation, which evidently makes it so attractive to the theoretically vulgar. The claim that market allocation is the best form of general economy is right, but only if the market is put on a sound regulatory foundation; precisely what is ignored in the concept of deregulation. But such regulation must be regulation of what must be regarded as, in a sense which will emerge, spontaneous economic action if the regulatory effort may possibly maximise freedom of such action. 1.2 The meaning of ‘regulation’ It now seems clear that regulation is a concept of sufficient significance that it must be regarded as, in Gallie’ s (1956) famous term, ‘essentially con- tested’. What we try to denote by regulation is so important that it is inevitable that divergent views, ultimately reflecting different fundamental political values, will always be taken of it. Bearing this in mind, two overall concepts of regulation of application to industrialised economies may be distinguished. First, there is a very general concept of ‘economic’ regulation as ‘the establishment of the legal framework within which [legitimate] economic activity is carried out’ (Coase 1977: 5). This concept embraces, but should be distinguished from, the concept, theoretically much more restricted in scope, of ‘social’ regulation as the patterning of economic activity by state intervention. The distinction between the 10 David Campbell concepts of economic and social regulation rests on the belief that the ideal typical market form of industrial economy cannot be socially regulated.

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  Business Economics

  • Rob Dransfield(Author)
  • 2013(Publication Date)
  • Taylor & Francis

    (Publisher)

  7 Government regulation and competition

  Chapter Outline

  7.1   Introduction

  7.2   Government intervention

  7.3   The government and the market

  7.4   Creating a competitive environment

  7.5   UK competition law

  7.6   Other forms of government regulation

  7.7   Summary

  Chapter Objectives

  After carefully reading and engaging with the tasks and activities outlined in this chapter you should have a better understanding of:

  • Why the government intervenes in the economy
  • Why the government intervenes in markets
  • Why the government creates rules about fair competition
  • The key strands of UK competition law
  • How to identify other forms of government regulation including regulations covering directors’ duties

  7.1  Introduction

  If all markets were characterized by competitive businesses and this led to the allocation of resources in an efficient and equitable (fair) way then there might be a strong case for arguing that government intervention would not be required in business activity. However, as we saw in the previous chapter the concept of perfect competition is only a theoretical ideal and there may be economic disadvantages from having too many small suppliers.

  Market models illustrate different levels of competition ranging from perfect competition to monopoly. The nature of uncompetitive markets is that there is asymmetry of power in those markets. This suggests that there may be a role for the Regulation of Markets in order to address imbalances of power.

  This chapter introduces the role of the government in the market economy. It shows that there is considerable difference of opinion about the appropriate role of government interference in the marketplace. Some economists believe that the best role for government is a minimal role. In contrast, other economists believe that there is an important role for government in making markets more efficient and for protecting the interests of consumers. This chapter focuses on how markets can be made to work more efficiently and effectively.

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  Environmental and Natural Resources Economics

  Theory, Policy, and the Sustainable Society

  • Steven Hackett, Sahan T. M. Dissanayake(Authors)
  • 2014(Publication Date)
  • Routledge

    (Publisher)

  Chapter 10 , which focuses on incentive regulation.

  Government Failure

  A circumstance in which policymakers fail to craft regulatory interventions that enhance the efficiency of market processes. For example, policymakers may attempt to craft regulations such as Pigouvian taxes to resolve market failures, but political influence may distort the regulation to such an extent that the regulation creates additional inefficiencies.

  Summary

  • We have defined capitalism as an economic system based on the use of a complete set of “decentralized markets” to allocate privately owned resources, goods, and services (as opposed to socialist systems, in which allocation decisions are centralized at some level of community or government control). Individuals (or other private entities) own capital, and production and employment decisions are decentralized.
  • It has been pointed out that there have been no true tests of pure, laissez-faire market capitalism (fully unregulated) in recent history. It is unlikely to be in the best interests of society as a whole to practice pure laissez-faire capitalism because of market failures and because of inequalities heightened by capitalism.
  • A well-functioning competitive market is the primary benchmark for evaluating market failures and the need for public policy intervention. For a market to be well functioning and competitive, there must be many individual buyers and sellers, each of whom is small relative to the overall market. Market entry and exit costs must be inconsequential. Current and potential market participants must be fully informed of prices, qualities, and location; transaction costs must be low. There must be no collusion among the market participants. There can be no consequential positive or negative externalities.

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  Economics for Investment Decision Makers

  Micro, Macro, and International Economics

  • Christopher D. Piros, Jerald E. Pinto(Authors)
  • 2013(Publication Date)
  • Wiley

    (Publisher)

   Regulatory competition is competition among different regulatory bodies to use regulation in order to attract certain entities.  Regulatory arbitrage is the use of regulation by an entity to exploit differences in economic substance and regulatory interpretation or in regulatory regimes to the entity’s benefit.  Interdependence in the actions and potentially conflicting objectives of regulators is an important consideration for regulators, those regulated, and those assessing the effects of regulation. 728 Economics for Investment Decision Makers  There are many regulatory tools available to regulators, including price mechanisms (such as taxes and subsidies), regulatory mandates and restrictions on behaviors, provision of public goods, and public financing of private projects.  The choice of regulatory tool should be consistent with maintaining a stable regulatory environment. Stable does not mean unchanging, but rather refers to desirable attributes of regulation, including predictability, effectiveness in achieving objectives, time consistency, and enforceability.  The breadth of regulation of commerce necessitates the use of a framework that identifies potential areas of regulation. This framework can be referenced to identify specific areas of regulation, existing and anticipated, that may affect the entity of interest.  The regulation of securities markets and financial institutions is extensive and complex because of the consequences of failures in the financial system. These consequences include financial losses, loss of confidence, and disruption of commerce.  The focus of regulators in financial markets includes prudential supervision, financial stability, market integrity, and economic growth, among others.  Regulators—in assessing regulation and regulatory outcomes—should conduct ongoing cost-benefit analyses, develop techniques to enhance the measurement of these analyses, and use economic principles for guidance.

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