Industrial and Social Regulations
Industrial regulation is the process of developing policies, principles, rules or activities to guide an industry towards a desired direction. Over the years, industries in different economies of the world have been characterized by laissez-faire regulation. However, different governments have taken a key role in the drawing of industrial policies for the development purposes (Barthwal, 2007).
The effects of economic regulations depend on various factors. These factors include the motive of regulation, the nature and structure of regulation instrument, industry economic characteristics, and political legal environment factors. In monopoly markets, economic regulations have two effects. First, regulations in energy and communication industries constrain prices thereby making single firm to achieve economies of production. It also constrains firm’s prices so that it neither makes insufficient profits or excess profits. Additionally, the regulations ensure efficient pricing in monopoly markets. Uninformed regulating of monopoly markets may distort such markets by distorting the firm’s input and encourage inefficient pricing. Economic regulations may also alter technological changes within an industry. Moreover, regulation in the monopoly market may have an overall distribution of income among various parties in the market (Joshow& Rose, 1989).
Introduction of regulations in the multi – firm industry in terms of price, entry, and structure is causing some interest groups to gain at the expense of others. This is brought about by differences in the distribution of costs and benefits from such regulations. First, price and entry regulations in such markets may lead to lower, or higher prices. This strategy protects some firms that are not natural monopolies from the threat of rivalry and lower prices. The regulations contribute to discouraging new technologies rather than encouraging them. At the same time, price regulations in such markets protect consumers at the expense of firms (Joshow& Rose, 1989).
Various markets structure entities are affected by the introduction of economic regulations in an industry. Barriers to entry and exit which are entities of market structure entities are affected by regulation. Horizontal or vertical differentiation of firms is also affected by the introduction of such regulations. The regulation also affects a very important component of market structure which market concentration of buyers and sellers (Sutton, 2001).
Industry regulations affect barriers to entry or exit because they can be a source of market pricing inefficiency. The regulator may choose to regulate the industry to influence market concentration to make the industry competitive and attractive. Social regulation is the protection of public interest such as health and safety, environment, and social cohesion by the government or regulators. Social regulations are majorly concerned with production of goods and the effect of the production conditions for the general public. Social regulations affect entities employers who have to observe this regulation in the workplace to ensure the health and safety of employees. Social regulation entities include health and safety regulations, environmental regulations, and labeling and advertising regulations (Boyes& Melvin, 2012).
Social regulations affect environmental entity by requiring companies to be regulated emission and pollution of the environment to alleviate the effects pollution on the public. The regulation requires companies to develop various safety measures in the workplace to ensure healthy and safe working environment for the workers. In terms of quality products, social regulation may be introduced to induce an industry to produce quality products. This has its impact reflected in the increased cost of production in the industry which may translate to increase in the consumer price (Boyes& Melvin, 2012).
Natural monopolies occur when a one firm in an industry produces output and supply it to the market at a lower price than a combination of firms can (Nicholson & Snyder, 2010). Natural monopolies are established when technical and legal barriers to entry into an industry exist. Legal barriers could be a result of economic regulation. Another cause of natural monopolies has cost advantages to and sole access to strategic resources. According to economic theory, natural monopolies exist in industries that are characterized by decreasing long run average costs. This provides a justification for government regulation of such industries (Egenhofer&Gialoglou, 2004). The antitrust laws in the United States were put in place by the federal and state government as a means of regulating corporations. There are four major pieces antitrust laws that regulate corporations in the U.S. They include agreement between competitors, restrictions on mergers, preventing monopoly powers, and contracts between buyers and sellers.
Three main industrial regulation commissions in the United States are Federal Communications Commission (FCC), the Federal Energy Regulatory Commission (FERC), and Securities and Exchanges Commission (SEC). These three are independent agencies that administer regulation that control the communication, energy, and stock exchange activities in each industry. The three commissions ensure that industry policies and regulations are strictly adhered to by industry players (Taylor, &Weerapana, 2012).
The Occupational Health and Safety Administration (OSHA) ensure that all employers follow regulations on health, safety, and risks in the workplace. Food and Drug Administration (FDA) regulates food and drug advertising, approves new drugs, and provides labeling and packaging requirements. On the other hand, National Highway and Traffic Safety Administration (NHTSA) set standards for automobiles and highways as well as monitoring risks. The Federal Aviation Administration (FAA) regulates and sets airline safety standards. Lastly, Federal Trade Commission also regulates information in product advertisement at states and federal levels (Taylor, &Weerapana, 2012).
The world continues to globalize, many nations are regulating various industries to avoid negative consequences. The regulations are either economic or social. For each regulation, there are a number of positive and negative consequences.
Barthwal, R. R. (2007). Industrial Economics: An Introductory Text Book. New Delhi. New Age International Publishers.
Boyes, W. J., & Melvin, M. (2012).Microeconomics. Mason, OH: South-Western Cengage Learning.
Egenhofer, C., &Gialoglou, K. (2004).Rethinking the EU regulatory strategy for the internal energy market. Brussels: CEPS.
Joshow, P. L., & Rose, L. N. (1989).Effects of economic regulations.Massachusetts Institute of Technology.
Nicholson, W., & Snyder, C. (2010).Intermediate microeconomics and its applications. Australia: South-Western Cengage Learning.
Sutton, J. (2001). Technology and market structure: Theory and history. Cambridge, Massachusetts: MIT Press.
Taylor, J. B., &Weerapana, A. (2012).Principles of economics. Mason, OH: South-Western Cengage Learning.