4.1.8.8 Public ownership, privatisation, regulation and deregulation

regulation

rules made by the government to control how businesses and markets work

to ensure their fair for everyone

Why are markets regulated?

reduces monopoly power via competition policy, lower prices via price controls

how does regulation stop market failure

market failure

when markets do not work properly by their own

protect consumers, stop unfair competition, keep people and environment safe, ensure honesty from businesses, prevent monopolies

5 reasons for regulation

deregulation

removing/reducing government rules in a market

increases competition leading to lower prices, allows greater business autonomy

why do governments deregulate markets

removes rules that stop new firms from joining the market => greater contestability => more firms join => firms try to attract consumers => compete with prices => lower prices

How does deregulation lead to lower prices?

less protection for consumers/environment, regulatory capture

however, deregulation has some downsides

regulatory capture

when a government regulator starts helping the businesses it is supposed to control, instead of protecting the public

over friendliness with business or gov. relies on them for info, as a result rules benefit companies over consumers

What may cause regulatory capture?

in the UK deregulation of the airline industry led to more airlines emerging, creating lower prices

application for deregulation

only lowers prices if enough new firms join, lower quality, some industries require strong rules for safety and reliability

disadvantages for deregulation

depends how easy it is for new firms to join and survive, depends if other protections remain, depends on industry type

evaluation for deregulation, what does it depend on?