Governmental Regulation

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Governmental Regulation SUBDOMAIN: 309.1 – ECONOMICS Objective 309.1.3-06 Stacy Arceneaux

All potential business candidates need to understand the impact competitive environments will have on their employers and businesses. In this essay I will show the relationship between regulation and market structures and how regulation affects the market. Industrial regulation is a governmental regulation of prices charged and services provided to the public in specific industries. The purpose of industrial regulation is to prevent monopolies from forming and taking advantage of consumers. Regulation also helps keep the market open for new companies gain a portion of the market share and allow consumers to have more options. This affects the market by allowing other competitive firms to enter the market. However, some businesses are not regulated well at all and monopolies will form anyways with government knowledge and sometimes government approval. It is impossible to get into these types of markets due to patents, expenses and regulations. The aluminum industry is one that has total market share in the U.S. The railroad industry was a problem in earlier years. Industrial regulation affects monopolies by, confining the regulated firm to a normal profit or a fair return on its assets and in return this decreases the incentive to decrease cost at all levels of output. Industrial regulation sometimes perpetuates monopoly long after the conditions of natural monopoly has ended. Industrial regulation helps prevent an oligopoly from increasing market power, including price fixing, conspiring with competitors and lowering prices to weed out competition. (Industrial Regulation,misswebweaver, April 2012, Accessed February 21, 2013, http://www.studymode.com)

Social regulation addresses specific social problems like, pollution, product and worker safety, and discrimination. Social regulation exist in order to dictate the design of products, the conditions of employment, and the nature of the production process. For example, it enforces laws against workplace discrimination due to race, religion, disablility, gender or age. Social regulation affects all industries or “across the board” far more than industrial regulation. Examples of industries that are affected by social regulation could be power plants and chemical plants, but affect every business in general. Social regulation comes into play when a company is uses harmful materials in production of their good and the disposal and emission of those harmful products must be regulated to maintain the safety of workers, close residents and the ozone. These types of regulations can have a costly impact on these businesses. This could mean that they have to spend more money on available technology to make sure the waste is being disposed in guidelines with regulation. Also, it could limit the amount of time or amount that a company can or cannot use the harmful product, which will then cost them in production and workers. Social regulation affects other businesses by requiring them to offer a reasonable amount of accommidation for workers with disabilities. This could incur cost of adding additional structure to the facility to accomadate. Hiring someone near a retirement age could cost more in benefits to the company as well. (McConnell, Brue Flynn, Economics;18: Antitrust Policy and Regulation, Social Regulation pg. 375-84.)

A natural monopoly is a monopoly that occurs when there are extremely high fixed costs of distribution and a larger scale infrastructure is required to supply the demand of the product to consumers. A natural monopoly is usually more

common for utility companies and railroads. The reason being is that the infrastructures for the companies already exist like, pipelines, cables, tracks, and water supply and these reasons make a monopoly justifiable and prevents waste by having rival companies duplicate your product or service. They have

sunken cost and it...
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