Regulation and Market Structures Industrial or Economic

¶ … Regulation and Market Structures Industrial or economic regulation can be defined as an act of government or a governmental body to regulate an industry in its entirety. Commonly the most regulates sectors include, the airline industry, banking sector, rail and road, and television broadcasting.

The main aim of taking such regulatory measures is for the agency to take closer look (to monitor) on the industries' price and products to ensure that such industries do not start a monopoly and take advantage of consumers, unfortunately such regulatory bodies at times have been prone to working close they with those industries they are purportedly regulating, they in the long run end up working for the industry and legally raise prices, prevent completion and consumers in the end suffer.

Social regulation on the other hand includes those regulations associated with the environmental control, healthy and safety regulations, restrictions on labeling and advertising. There are various key federal agencies involved in social regulation and economic regulation. The Environmental Protection Agency (EPA) for instance has its mandate in controlling pollution. New drugs, regulation on advertisement for foods and drugs are approved by the Food and Drug Administration (FDA) besides providing standards for labeling on food packages.

Another agency is the Occupational Safety and Healthy Administration (OSHA) which in its mandate requires that employers inform workers about risks involved in work places and mandates firms to reduce such risks. The National Highway and Traffic Safety Administration (NHTSA) is another federal agency which monitors risks and sets standards for automobiles and highways.. standards for airline safety are set by the federal aviation administration. The consumer product safety administration examines consumer products for risks.

Social regulation agencies play a crucial role in society as well as this regulations cast a lot of benefit in terms of information dissemination and risk control, this benefits are considered in light of the cost involved, for instance, the food and drug agency might hold back a new drug for tests in order to reduce the risks involved, if the drug was to be approved, it will be costly to the lives of people.

In this case it's evident that no one knows that an illness might have been prevented with a new drug, but it will be common knowledge when a faulty new drug causes severe illness or death. The action of this agencies are mostly criticized because of the cost they impose on firms and consumers, the most important thing critics forget is that such agencies actions do clearly reduce risks and provide informed information to consumers thus reducing risks of losing lives (John B. Taylor, 2002).

In economics natural monopolies are defined as an industry where the fixed cost of capital goods is quite high in the sense that it's not profitable for a second firm to enter and compete. A natural reason cited for this industry to be a monopoly is solely that the economies of scale require only one firm rather than many of them (Fred E. Foldvary 1999). Utilities such as water, electricity and natural gas are the typical examples of natural monopolies.

Building for example a water and sewage pipes in the city for example will be costly for a second firm since the delivery services of this nature have a high fixed cost as compared to the low variable cost. In the case of electricity, deregulation is ongoing such that the generators of electric power can now compete. The infrastructure however, that is the wires that carry electricity usually remain a natural monopoly and different companies send their electricity through the same grid.

The government however regulates these entities in order to prevent them from exploiting their monopolies with high prices. The federal government has set some laws to prevent actions which may be taken by firms by the virtue of enjoying monopolies to increase market power, which includes price fixing, predatory pricing.