Ecomomic Regulation or competition policy Research Paper

Ecomomic Regulation or competition policy - Research Paper Example The relationship between Competition policy and Economic regulation will also be discussed. Comparison of the two approaches and the synergies that it will bring if both are used by the same agency. We also discuss some other concepts which include AJ effect and rate of return regulation. Literature Review In this literature review we will discuss in detail various concepts related to the topic. Economic Regulations George Stigler was the pioneer of the theory of economic regulation. He suggested that as rule regulations are designed in such a way that they benefit the industry who acquire them rather than protecting or benefitting the public. (Vane) He integrated the economics of regulation and economics of politics. According to him same analysis tools should be applied to both because both of them display self interested rational behavior. Economic regulation is a form of antitrust law in traditional economics through which concentration of wealth is controlled. The major objectiv e was that private motives of accumulation of wealth do not hurt the public interest. It was introduced to safeguard public interest. The intension was to protect public from economic abuses such as unreasonable prices, anticompetitive activities, to protect from sale of unethical products which are hazardous for health and safety of the public. The basic role of regulators was of the watchman of the public interest. In addition to that the role of regulators is of preventing monopoly and preserving competition. (Cochran) Background The regulatory scene which we witness today is significantly different from what it was in 1980’s. This phenomenon is due to massive privatization which gave birth to new regulatory apparatus. This process of privatization is now an international affair. Hence many countries and regions are now following this deregulation by trying to implement the best practices in other systems and avoiding the worst mistakes. A major problem with the deregulati on is that it is based on very weak logical foundation of improving efficiency. In the absence of competition this may not be the case. (Michael A Crew) Economic Regulation Theories It is important to note that study of regulation cannot be done in isolation. It has to be studied in the social, political and economic context in which it exists. The relative powers of different interest groups play their part in formulating and shaping the regulations. Different regulatory mechanisms interact with each other and once implemented they play an important role as the motives of decision makers. A thorough understanding of regulatory process is thus not possible without considering specific institutions, political structures and actors. Two major theories of government behavior about economic regulations are public interest approach and self interest theory or public choice theory. (Jan) Public Interest Approach According to this theory government intervention or regulation is required on ly to in case of market failure, when market is unable to achieve a particular social objective such as equality. Government intervention is needed to correct this failure. This approach is