Regulation of Market Structures

Industrial Regulation

Industrial regulation is a set of governmental activities aimed at controlling and influencing market economies of industries, firms, and enterprises. Such activities may include “reforming company law, promoting unified markets, enacting mergers legislation, and a variety of other measures” (Sugden, 1993). Such kind of regulations, consisting in imposition of different rules on firms and industries, exists to exercise control over the choices of certain areas of production being able to either widen or narrow them. This is necessary for food industries, construction, television industry, public transport, consumption of medicines and alcohol; the regulation of production and consumption of products and services in these areas is vital for normal functioning of society and moderate rates of countries’ economic development. If government did not intrude into the county’s economy and internal markets this would result in excessive or insufficient number of products and services, which would lead to high rates of inflation followed by national exchange devaluation.

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Discussing the influence of industrial regulation on the market, it should be mentioned that it is aimed more at the functioning of firms and other organizations rather then at customers, since namely the firms supply the country with goods, services and other resources. However, according to Spulber (1989), control over one side of a market, buyers or sellers, will have a corresponding impact on the other side. Thus, imposition of certain restrictions on goods or services of one manufacturer entails the restriction of the consumers and their choice because they purchase these goods and services. This is why it can be stated that altering any of the market rules, the government affects balance between supply and demand. Despite this, a number of entities are affected by industrial regulation; at this media market is among those which are subjected to industrial regulation mostly through the taxation. Governments levy various taxes on corporations but may also enact policies either to influence a particular market or to promote social goals (Albarran, 2002). Regarding the media market, industrial regulation in this sphere was aimed at ensuring “expanded choices and lower costs for consumers” (Albarran, 2002), though with the Telecommunication Act of 1996 the regulators managed to affect only the largest national markets, which shows that not all the cases of regulation are beneficial.

Social Regulation

As far as social regulation is concerned, it has completely different spheres of application. Unlike industrial regulation which focuses on the market, social regulation “tends to focus on the conditions under which goods and services are produced and distributed, as well as physical features of the products” (Bagheri, 2000). Social regulation exists to control various social issues including public health, environment, employment, working conditions, etc. The entities social regulation may affect include a wide range of firms; what is prominent here is that social regulation influences a bigger number of firms, companies and organizations than the industrial regulation. Among the firms affected by social regulation there may be not only public healthcare organizations but serious businesses as well. This influence consists in its raising prices for the product directly and indirectly: “It does so directly because compliance costs normally get passed on to consumers, and it does so indirectly by reducing labor productivity” (McConnell, Brue & Campbell, 2004). Moreover, due to the fact that social regulation usually affects smaller firms rather than larger ones, it is also capable of weakening competition.

Natural Monopoly

A natural monopoly is a monopoly of a company characterized by its unique position in the market due to the monopolist’s natural rights or out of economic interests of the country and its population. Natural monopoly arises in the situation when one single company can meet the demand on a particular kind of goods or services at lower average costs than a number of smaller companies. In other words, natural monopoly is established when “one firm can always profitably underprice entrants and drive them out of businesses” (Grossman & Cole, 2003), which means that the competitiveness is so high that other companies do not see any sense in producing the same kind of products or services. Some years ago the economists treated the natural monopolies as scale economies. However, “in the new theory, cost subadditivity replaced scale economies as the recipe for natural monopoly” (Mueller, 1997), by this justifying the fact that a natural monopoly can, indeed, be a single and efficient supplier at the lowest possible cost of the manufactured products or services. The most widespread examples of natural monopolies are telecommunications, transportation, mail delivery, water, gas, and electricity services. Taking telephone as a separate example, it would be easier to show that the establishment of this monopoly can be, indeed, justified. When telephony first emerged, it was inconvenient, unreliable and not available for most of people. Only after creating a global network it became possible to establish telephone connection of high quality which, in the course of the industry development, became relatively cheap and available means of long-distance communication.

Antitrust Laws

Antitrust laws are state and federal laws whose main purpose is to prevent monopolies. These laws are applied to individuals and businesses. The idea behind this law is that monopolies and trusts can reduce the markets way of operation by preventing others from engaging in competitive market.The Antitrust laws are: The Sherman Act of 1980, the Clayton Act that was first passed as a law in 1914 and later was amended in 1936 by the Robinson-Pat man Act and in 1950 by Cellar Kefauver Act and lastly the federal Trade Commission Act of 1914. The Sherman Act prohibits contracts combinations and conspiracies in control of trade and monopolization. It includes criminals’ penalties when enforced by the government. The Clayton Act deals normally with specific types of controls including exclusive arrangements, tie in sales, price discrimination, mergers and acquisitions and interlocking directorates. This Act only carries civil penalties. The federal trade commission Act is administered particularly by that agency. It includes all the prohibitions of other antitrust laws and furthermore, utilized to fill loopholes in more easily understood laws (Richard Steuer).

Regulatory commissions of industrial regulation

There exist three main regulatory commissions on industrial regulations. The first is Federal Energy Regulatory Commission which is in charge of controlling the utilization of natural gas together with oil and hydroelectric industries. Secondly, there exist State Public Utility Commissions which control utilizing of electricity, gas and telephone connection. And finally, this is Federal Communication Commission the main functions of which are dealing with licenses applications as well as working out and putting into life different regulatory programs

Five primary federal regulatory commissions and their functions

There exist five main Federal Regulatory Commissions. First of all, it is Equal Opportunity Commission which deals with hiring personnel, its promotion and discharging. Secondly, it is Consumer Products Safety Commission which ensures the safety of the food and other products the consumers buy. One more is Food and Drug Administration which is responsible for the effectiveness of drugs and cosmetics as well as quality of the food they consume. Moreover, there is Occupation Safety and Health Administration the main function of which is to take care about industrial safety and health. Furthermore, the main functions of Environmental Protection Agency are to control air pollution together with noise and water pollution. And, finally, it is Food and Drug Administration which ensures that sold food, cosmetics and drugs are safe to use for the consumers. The commission also deals with restructuring of electric utility and natural gas industries with the purpose of selling more products these manufactured by these industries. The main function of federal regulatory commissions is to ensure that citizens are not deceived or injured through advertisements and marketing practices; the measures they take help prevent unfair competition.

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References

  1. Albarran, A.B. (2002). Media Economics: Understanding Markets, Industries and Concepts. Blackwell Publishing
  2. Grossman, P.Z., Cole, D.H. The End of a Natural Monopoly: Deregulation and Competition in the Electric Power Industry. Routledge
  3. McConnell, C.R., Brue, S.L., Campbell R. R. (2004). Microeconomics: Principles, Problems, and Policies. McGraw-Hill Professional
  4. Mueller, M. (1997). Universal Service: Competition, Interconnection and Monopoly in the Making of the American Telephone System. American Enterprise Institute
  5. Spulber, D.F. (1989). Regulation and Markets. MIT Press
  6. Sugden, R. (1993). Industrial Economic Regulation: A Framework and Exploration. Routledge
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