Market Competition, Essay Example

Introduction

This paper describes the relationship between regulation and market structures in the context of economics.  Particular focus upon how regulations affect the markets.

Industrial Economic Regulation

Economic industrial regulation may be defined as a form of government intervention, whereby regulators are put in place to influence the behaviour of firms in the private sector.  The concept of regulation being to narrow the choices in specific key areas, e.g. minimum wage, telephone rates, airline prices etc. Governments may use this practice with considerable efficiency in order to achieve a broad range of political, social and economic objectives.  Another object to government regulations is the prevention of monopolistic profits of price discrimination.  As such it might reduce the speed of economic change and the redistribution of income. “Researchers have estimated that in Canada 29% of Gross Domestic Product at factor costs was subject to direct regulation in 1978. The comparable figure for the US was 26%” (The Canadian Encyclopedia, 2010).

Milton Friedman (Nobel winning economist) was a critic of Government economic regulation. He argued that Government should limit action and involvement in economics and thereby preserve individual rights.  Interventionist practices tend to create more problems than they actually solve.  Market structure can be defined as a framework where business firms interact with one another economically.  An oligopoly exists where the market is dominated by a small number of firms that own 40% or more of the market share. Forward transactions are often used as a potent tool in the hands of the oligopolist, particularly those who are trading on the futures market.  Price regulation has been used in oligopolistic competition in order to regulate markets like Oil, Gas and Electricity.

Social Regulations

Social regulations may be defined as those Government imposed restrictions which are designed to stop or prevent harmful Corporate behaviour i.e. contravention of Health and Safety standards, pollution of the environment etc. Social regulation is intended to protect the environment, consumers and the workforce.  With Industrial Regulation the Government department is more concerned with how industry complies to regulations i.e. The Food and Drug Agency and the Pharmaceutical Industry. The FDA oversees such items as The Public Health Services Act and regulatory measures to ensure compliance to Health and Safety. Social Regulations are generally broader and have a more far reaching affect across a diverse range of business.

A large number of organizational have started to realize their social responsibility to society.  In particular to ensure that the products and services do not have a negative impact on society or the environment.  Consumers equally prefer to buy from businesses that adopt this practice and good examples are free trade coffee, organic foods, recycled products sector social regulations include such items as customer rights, customer protection, environmental standards, recycling policies etc.

Consumer Rights: the consumer has the leading rights in most situations.  They are protected from their trading practices and regulations.  Traders are required by law to act, but clearly and honestly.  There are legal provisions to take the rights of consumers i.e. trade descriptions act, so you could etc.

Environmental Standards: the government of the USA imposes regulations and standards for environmental policies. The objective being to protect the environment for future generations.  The contorted by the regulations is extremely fragmented.  The latest BP oil’s political next to the example of the complexities involved when a major environmental disaster occurs.

Recycling Policies: there are no legal requirements mandating the need for recycling in the USA.  A large number of states and end consumers do however support this policy.  For example for recycling, check out pictures unlikely to attract customers who care about environmental matters.  Consumers often examine projects with disposable recycling capabilities.

Natural Monopolies

Natural Monopolies may be defined as “A natural monopoly is a situation where for technical or social reasons there cannot be more than one efficient provider of a good. Public utilities are usually considered to be natural monopolies. “(Moffatt, 2010). A natural monopoly becomes established when there is scope for exploitation of large economies of scale. This type of condition tends to happen where you find industries with a high ratio of fixed to variable cost. The Telecommunication industries have been cited as an example of a natural monopoly. The situation is however changing as advancements in technology are creating changes whereby traditional barriers to market entry are becoming eroded. “To prevent utilities from exploiting their monopolies with high prices, they are regulated by government. Typically, they are allowed a fixed percentage of profit above cost. “ (Foldvary, 2010).

Regulations may impact market structures by the restriction output and creating an environment escalating higher prices.  These are areas where natural monopolies exist, i.e., gas, water, a lecturer city etc. if you see a lower fixed costs have to be absorbed and these are passed onto the consumer.  Government justify natural monopolies on the basis of improved services and economies of scale. Particular examples relate to the Electric power transmission services “Both federal and state policymakers continue to treat transmission and distribution as natural monopolies, meaning they believe one firm could supply the entire demand at lower cost than multiple firms serving the relevant market” (Kiesling, 2003).

Anti Trust Laws

The legal position on Anti-Trust Law in the USA comes under Federal jurisdiction hence “Competition law is known in the United States as “antitrust law”. The substance and practice of competition law vary from jurisdiction to jurisdiction. Protecting the interests of consumers (consumer welfare) and ensuring that entrepreneurs have an opportunity to compete in the market economy are often treated as important objectives.”  (HG.org, 2010)

There are three four major pieces of legislation collectively termed the Antitrust Laws.  These being:

1. Clayton Anti-Trust Act 1914
2. The Sherman Act 1890
3. The US Antitrust Law
4. Hart-Scott Roddino Anti-Trust Improvements Act ( lesser importance)
5. Robinson Pattman Act (1936)

Clayton Anti-Trust Act (1914) : The Act was unpopular because it was used against a large number of American Corporations “The act prohibited exclusive sales contracts, local price cutting to freeze out competitors, rebates, and interlocking directorates in corporations capitalized at $1 million or more in the same field of business, and inter-corporate stock holdings.” (Columbia University Press, 2007).

The Sherman  Act (1980): The act reduced  the concentration of power which both restricted trade and economic competition. It made illegal the  monopoly of trade or commerce in the  USA. The aim being to protect customers and businesses from unfair business practices.

The US Anti-Trust Law: These encapsulate the body of laws which prohibit monopoly and unfair practices in the USA. Government Agencies and litigators apply these laws in order to help prevent a situation of market failure.

Hart-Scott Roddino Anti-trust Improvements Act : Essentially deals with the concept of company mergers and acquisitions and ensuring fairness in the completion of these transactions “requires notifications to be filed prior to the completion of a merger or acquisition when certain transaction size limits are met” (McLain, 2010).

Robinson Pattman Act (1936)

“The Robinson-Patman Act of 1936 (or Anti-Price Discrimination Act, Pub. L. No. 74-692, 49 Stat. 1526 (codified at 15 U.S.C. § 13)) is a United States federal law that prohibits what were considered, at the time of passage, to be anticompetitive practices by producers, specifically price discrimination. It grew out of practices in which chain stores were allowed to purchase goods at lower prices than other retailers. The Act provided for criminal penalties, but contained a specific exemption for “cooperative associations”.(HG.org, 2010)

Main Regulatory Commissions of Industrial Regulation

1. Public Utilities Regulatory Commission
2. Federal Energy Regulatory Commission
3. US Postal Regulatory Commission

Public Utilities Regulatory Commission: Essentially under State regulated control, for example : “California Public Utilities Commission”and regulates all utilities in the State of California. It is responsible for regulating all privately owned utilities in the State.

Federal Energy Regulatory Commission:  “Assist consumers in obtaining reliable, efficient and sustainable energy services at a reasonable cost through appropriate regulatory and market means.” (FERC, 2010)

US Postal Regulatory Commission “The Commission now has expanded authority under the postal law enacted in 2006 to ensure that service and rate issues sent to us by postal customers are resolved by the Postal Service in a timely and appropriate manner.  As of the end of June, we have helped customers by resolving 391 rate and service inquiries.  In addition, the Commission has created a variety of online resources to assist postal customers in accessing information and assistance.” (Postal Regulatory Commission, 2010)

Following different areas:

• Environmental Protection Agency (EPH)
• Food Regulatory Agency (FDA)
• Department of Health and Human Services (DHHS)
• Social Security Administration (CSA)
• National Institute of Health (NIH)

Environmental Protection Agency :  The mission of EPA is to protect human health and to safeguard the natural environment — air, water and land — upon which life depends.

Food Regulatory Agency: “ The Food and Drug Administration (FDA) is an operating division of the U.S. Department of Health and Human Services (DHHS). While the responsibility of DHHS is to protect the overall health of Americans, the FDA has a more specialized role in the oversight of food, drugs , and related products. The FDA was established after the passage of the Pure Food and Drugs Act of 1906” (Faqs.org, 2010)

Department of Health and Human Services (DHHS) : This is a huge department that covers such items as :

• Social Security Administration
• Administration for Children and Families
• Family and Youth Services’
• Health Research and Quality
• National Labour Relations

Social Security Administration : Deals with such items as Pensions, Social Security, Child support etc.

References

Columbia University Press. (2007). Clayton Anti-Trust Act. Retrieved 8 11, 2010, from Columbia University Press: http://www.infoplease.com/ce6/history/A0812484.html#axzz0wQ3mGL5x

Faqs.org. (2010). Regulatory Agencies. Retrieved 8 9, 2010, from Faqs.org: http://www.faqs.org/nutrition/Pre-Sma/Regulatory-Agencies.html

FERC. (2010). FERC. Retrieved 8 11, 2010, from FERC: http://www.ferc.gov/about/about.asp

Foldvary, F. E. (2010). Natural Monopolies. Retrieved 8 14, 2010, from Progress Report: http://www.progress.org/fold74.htm

HG.org. (2010). Anti Trust Law. Retrieved 8 15, 2010, from HG.org: http://www.hg.org/antitrust.html

Kiesling, L. (2003, 8 18). Rethink the Natural Monopoly Justification of Electricity Regulation. Retrieved 8 11, 2010, from Reason Foundation : http://reason.org/news/show/rethink-the-natural-monopoly-j

McLain, T. L. (2010). Hart-Scott-Rodino Antitrust Improvements Act of 1976 – A Basic Overview. Retrieved 8 11, 2010, from Avvo: http://www.avvo.com/legal-guides/ugc/hart-scott-rodino-antitrust-improvements-act-of-1976—a-basic-overview

Moffatt, M. (2010). Definition of Natural Monopoly. Retrieved 8 14, 2010, from About.com: http://economics.about.com/cs/economicsglossary/g/naturalmonopoly.htm

Postal Regulatory Commission. (2010, 8 13). Postal Regulatory Commission. Retrieved 8 15, 2010, from Postal Regulatory Commission: http://www.prc.gov/prc-pages/default.aspx

The Canadian Encyclopedia. (2010). Economic Regulation. Retrieved 8 10, 2010, from The Canadian Encyclopedia: http://www.thecanadianencyclopedia.com/index.cfm?PgNm=TCE&Params=A1ARTA0002514