Competition

Competition

Introduction

Industrial regulation is the industrial regulation of prices charged to the consumer, which is also known as public regulation. The idea is to determine a price, or rate, that covers the production cost and a fair profit for the company. The Public interest theory of regulation that states that it “is necessary to keep a natural monopoly from charging monopoly prices and thus harming consumers and society” embodies the idea industrial regulation (Clarida, 2000).

Industrial regulation affects the market by influencing the strategies a company uses to increase profits. In a non-regulated market a company will increase profits by reducing cost by producing more product, but in an industrial regulated market, eventually the company will be required to lower the price of the product in order to balance out the profit to a normal level. The negative effect of this regulation is that since the company is held to a fair profit there is no reason to exercise strategies to minimize production costs.

With these regulations in place, the regulations sometimes block entry of competitors into an industry; the legal cartel theory arises from this way of thinking. A legal cartel is a safe haven for some companies and in fact some firms seek a legal cartel because of the guaranteed profit. This is caused by the regulations blocking entry of other companies and regulating the rates of the product. In terms of an oligopoly, a few firms controlling an entire market, the regulating agencies divide the market to create a fair competition environment (Taylor, 2000).

Social Regulation

Social regulation came about after industrial regulation which regulated monopolies and the price of products. Social regulation focuses on environmental conditions in which business is conducted and the effects of the business on society as a whole. Social regulation doesn't apply to certain types of business models like monopolies, oligopolies, or competition styles; social regulation is applicable to all businesses and affect day-to day operations (Whitehead, 2002).

The idea of social regulation is to protect the consumer from harmful products and workers from hazardous work environments. Take baby cribs for example, the dimensions of cribs is regulated in order to ensure the cribs are a safe product for babies to sleep in. The space between the slats is regulated as well as the type of bedding used in the crib. There are also regulations in the workplace to protect employees and employers, such as minimum wage requirements, and how many breaks an employee is required to take while working.

Natural Monopolies

A natural monopoly occurs when one company supplies the market demand at a fair price. It would be uneconomical for companies to compete in providing these types of services to the consumer (McConnell & Brue, 2008, p.589) which creates a natural monopoly. Generally, natural monopolies have large fixed costs, which create a barrier to entry into the market. There are not too many examples of natural monopolies in today's economy but one that many are familiar with are local utilities.

Antitrust Laws

The Antitrust laws, is also referred to as the ...