Governmental Regulation SUBDOMAIN: 309.1 – ECONOMICS Objective 309.1.3-06 Stacy Arceneaux

All potential business candidates need to understand the impact competitive environments will have on their employers and businesses. In this essay I will show the relationship between regulation and market structures and how regulation affects the market. Industrial regulation is a governmental regulation of prices charged and services provided to the public in specific industries. The purpose of industrial regulation is to prevent monopolies from forming and taking advantage of consumers. Regulation also helps keep the market open for new companies gain a portion of the market share and allow consumers to have more options. This affects the market by allowing other competitive firms to enter the market. However, some businesses are not regulated well at all and monopolies will form anyways with government knowledge and sometimes government approval. It is impossible to get into these types of markets due to patents, expenses and regulations. The aluminum industry is one that has total market share in the U.S. The railroad industry was a problem in earlier years. Industrial regulation affects monopolies by, confining the regulated firm to a normal profit or a fair return on its assets and in return this decreases the incentive to decrease cost at all levels of output. Industrial regulation sometimes perpetuates monopoly long after the conditions of natural monopoly has ended. Industrial regulation helps prevent an oligopoly from increasing market power, including price fixing, conspiring with competitors and lowering prices to weed out competition. (In...

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