- When
the market fails to produce the optimal mix of output or distribution
of income, there is justification for government intervention. Antitrust
and Regulation are options to deal with market power. Antitrust focuses
on market structure and anti-competitive practices. Regulation stipulates
specific market behavior.
- Natural
Monopolies offer extensive economies of scale, and for that reason
antitrust may be inappropriate. Regulation of natural monopolies can
focus on price, profit, or output. Depending on how prices are regulated,
the firm may require subsidies. A consequence of profit regulation
may be cost increases, and output regulations may lead to poorer quality
products.
- The
argument for deregulation is that the costs of regulation exceed
the benefits. These costs include the opportunity costs associated
with administration, enforcement and compliance.
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