REGULATION AND DEREGULATION

Market regulation has been induced by market failures such as natural monopoly and a-symmetric information. It has also been motivated by considerations to provide universal access and services to remote regions and to sustain farmers’ incomes. The wave of deregulations that characterized the 1980s and 90s sprang from technological developments and from economic theory i.c. contestable market theory. Deregulation has been most successful in industries where competition increased by the arrival of rival networks due to technological advance as was the case in telecommunications. Deregulation of airlines was also successful as it shattered an artificial monopoly that repressed competition unnecessarily. Deregulation in banking has been less successful, because it removed the brakes on risky loans, while losses were moved over to the government. The effects of deregulation in public utility sectors like electricity and railroads have also been doubtful.