REGULATION
One of the Ways Government and
Businesses interact in a Mixed
Economy
Reference 9.1/9.2
Antitrust Law
to protect free markets by ensuring competition
• Sherman Antitrust Act – 1890
– “every contract, combination…conspiracy in restraint of
trade…illegal.”
– “attempt to monopolize…guilty of misdemeanor”
• Clayton Act – 1914
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No price discrimination
No tying contracts
No stock acquisition that reduces competition
No interlocking directorates
• Federal Trade Commission Act – 1914
• Robinson-Patman Act – 1936
– Discounts must be offered to all
• Wheeler-Lea Act – 1938
– FTC can intervene in cases of false, deceptive advertising
Regulating the behavior of
businesses
• Business firms must operate under the
law.
• Business firms must abide by rules or
regulations developed by the regulatory
agencies that are tasked with enforcing
the law.
1990’s
• 60,000 employees in 27 federal agencies
• additional employees in state and local
agencies
– public and private employees
• social workers
• building inspectors
• smog stations
• Members of the executive branch
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Animal and Plant Health Inspection
Service (APHIS)
Army Corps of Engineers
Bureau of Alcohol, Tobacco and
Firearms (ATF)
Commodity Credit Corporation (CCC)
Commodity Futures Trading
Commission (CFTC)
Consumer Product Safety
Commission
Department of Veterans Affairs (VA)
Drug Enforcement Administration
Employment and Training
Administration (ETA)
Employment Standards Administration
(ESA)
Environmental Protection Agency
(EPA)
Equal Employment Opportunity
Commission (EEOC)
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Farm Credit Administration (FCA)
Federal Aviation Administration
(FAA)
Federal Communications
Commission (FCC)
Federal Deposit Insurance
Commission (FDIC)
Federal Election Commission (FEC)
Federal Energy Regulatory
Commission (FERC)
Energy Efficiency and Renewable
Energy (EREN)
Federal Highway Administration (FHA)
Federal Maritime Commission (FMC)
Federal Railroad Administration (FRA)
Federal Trade Commission (FTC)
Food and Drug Administration
(FDA)
Nuclear Regulatory Commission
(NRC)
Securities and Exchange
Commission (SEC)
Government seeks to protect consumers
against
natural monopolies
• Natural monopolies-such low per-unit costs that
they can outcompete everyone else.
• distribution of water, natural gas, distribution and
generation of electricity, cable service
• Natural monopolies in the public interest may be
regulated in 2 ways.
• Price Regulation—setting prices
• Profit Regulation—setting profit margins
– may result in the removal of incentive to lower
costs=higher price to consumer
Theories of Regulation
Positive
• Public Interest Theory
– government sets “reasonable” limits on price/profits
– businesses earn “reasonable” profits
– consumers benefit from “reasonably” lower prices
It doesn’t always work out so “reasonably”
Theories of Regulation
Negative
• Capture Theory
• Public Choice Theory
Capture Theory of Regulation
Supporters of the regulated industry will
“capture” the regulatory agency
• Revolving Door
• Lobbyists
• Social Bonds
• Regulatory Agency serves the interests of
industry, not the consumer
Public Choice Theory
• Since increasing regulation increases the
power of regulators, their self-interest is in
increasing levels of regulation
• Regulators will favor the regulators over either
business or consumers
• “Big Government”
Another Branch of Regulation
• Social Good Regulation
• concerned with the conditions under which goods
and services are produced and with the safety of
these items to consumers
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OSHA
FDA
FCC
EPA
Consumer Product Safety Commission
ATF
SEC
Costs and Benefits of Regulation
• Costs
– higher unemployment
– higher costs to consumers
– unfair competition from
foreign suppliers
– “fairness”
• Benefits
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cleaner environment
safer products
conservation
improved quality of life
“fairness”
Regulation will have both intended and unintended consequences