The Institution of Economic Regulation

Introduction

For a country’s economy to grow, the government has to involve itself in economic regulation and economic development. It can be defined as the governments deliberate actions aimed at influencing industrial economic activity. The regulations enable economies to sustain themselves in time of financial crisis. Whereas we can say that the institution of economic regulation is generally understood by many governments, it is clear that it has not been thoroughly researched. That is why we have some developing countries still on the verge of economic failure.

Industry Regulation

This enterprise exists because of an organizations interest in broadening its market by altering service and product delivery to consumers. Industrial regulation consists of a number of economic aspects that are geared at regulating the market in a stable state to allow for perfect competition. The government may take action in the case of allocation inefficiency where the government identifies and eliminates obstacles to a competitive economy. The enterprise affects market by altering the market prices when similar industries are compared. The functions of the government include protecting its nationals from market instability, price gouging, and consumer exploitation. When one industry tends to exploit consumers, the government kicks in and regulates the prices for the whole industry, harmonizing the industry’s income and consumer needs. The regulatory process takes several measures in regulating the demand of consumer goods in the market. It can offer or take money from an industry; it can prohibit business trade or compel trade defining clearly its effects on who benefits from its regulation and who loses from the regulation.

The government has two main regulation objectives. These include the need to protect and benefit the nationals at large. Sometimes the regulations harm the consumer, and are perverse. The second objective is a result of political influences and the need to establish regulation based on political bias of a nation.

The entities affected by economic regulation are the consumer and the manufacturer. The consumer may benefit from lowered prices while the manufacturer gets paid to subsidize costs, or on the other hand suffer as the government raises prices to control the trade of a product from market. In such cases, the most affected business entities are monopolies and oligopolies, as they resemble each other in market trends. Oligopolies are formed by two or more firms intending to control the market. The government prohibits their market control to stabilize trade just like in monopolies.

Antitrust Laws

These are regulations that are set up by the government to prevent people from creating monopolies. These laws regulate competition across specific sectors. They have their roots based on the Sherman Antitrust Act, and the general agreements on tariffs and trade. They comprise of Sherman Act, Federal Trade Commission Act, Clayton Act, and Sherman Anti-trust Act of 1890. Some provisions were provided for these acts such as: These laws ban discriminative behaviors from dominating firms that include abusive terms like predatory pricing, price extortion, or general practices that establish dominance. Secondly, they offer remedies to merger acquisitions of large corporations or transactions that threaten competition process, and tend to form monopolies. Thirdly, they eliminate the possibility if businesses forming agreements that restrict free trading as is the case with cartels. They also provide regulation of prices to avoid price discrimination and lastly they regulate insurance programs to eliminate cases of consumer exploitation. It is however argued by researchers that there can be a negative outcome from the protection laws, especially when the incompetent and inefficient businesses are kept in competition, or when the intervention practice costs more than the consumer stands to gain from such practice.

There are four international laws we know under the antitrust laws; the Sherman act, the Federal Trade Commission act, Robinson-Patman act and the Clayton Act. The Antitrust and Unfair Competition Law seeks to prohibit unfair competition for consumers to enjoy a regulated fair price in the market. Entrepreneurs also gain from its regulations by being recognized in the economy against unfair competitors. The Antitrust laws are however intended to encourage competition in the market industry.

The Clayton Act was passed in 1914. It prohibits merger formations between organizations that are seeking to lower competition in one bias where they gain most market and hike product prices. It also prevents some business practices such as price discrimination.

Secondly, it is important to note the law on Federal Trade Commission Act. The US president appointed five bipartisan members to mandate the issues under this policy. The FTC was authorized to prohibit such unfair and illegal trade practices as would seem unfit for the economy. They have the mandate issue, cease and deny transactions in their respective regions.

The third Law is the Robin-Patman act which was formed in 1936. This act was to protect consumers on price harassment by retailers such as chain stores. This was done by introducing price discounts.

Sherman Act was the fourth law which was a basis of the antitrust law and later expanded as a result of enforcement of the legal concept. It contained seven sections but only two are present up to today. These are trust and monopolizing trade. Trust was important so as to restraint illegal trade while monopolizing trade was so as give penalty to any person who conspires with any foreign nation.

There are three main industrial regulatory commissions in the US. The first is Securities and Exchange Commission. Its work is to establish rules and regulations compliant with Dodd-Frank Wall Street reforms that establish public transparency and market accountability. It also ensures investors of protection of their input into financial systems.

The second is natural monopoly where if a firm can supply the entire market with a particular service on its own, and it supplies at lower unit cost than would be with competing firms, then a solution is provided to protect the society. This could be by public and industrial regulations whereby regulatory commissions regulate prices. An example of such a monopoly is a public utility such as the electricity supply company. It spreads its services far and wide. The established market share is large, and for anyone to want to venture into this industry, they would be required to purchase cables and extension poles to supply in such a large area that the initial investor would feel the competition (Government, Industry and Privatisation, 2001).

The third regulation is the legal cartel theory. A guarantee is given to the regulated firms. An example of such a guarantee is occupational licensing in labor markets.

References

Government, Industry and Privatisation. (2001). Regulation and Market Structure. Web.

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