Industrial Regulation: Eco Bus - Case Study Example

?Running head: ECO BUS 3 Eco Bus 3 Insert Insert Insert 26 September Eco Bus 3 Industrial economic regulation is “the microeconomic measures that are designed to influence the structure, behavior, or performance at the level of the industry” (Cowling & Sugden 5). In business, entrepreneurship and competition forms the crucial driving forces to better economic growth. Through industrial regulation, governments are able to increase or reduce barriers to competition. In most instances, good industrial regulation is associated with the reduction or removal of barriers to entry into industry and the exercise of competition. Hence, through regulatory agency, it monitors an industry’s prices and product to ensure that monopolies do not develop and consumers are not badly exploited. Industrial regulation is mainly created for the following market structures: monopoly and oligopoly. Monopoly exists where a single entity produces and sells a given product or service. Oligopoly exists where some companies choose to interact strategically in order to take control of the market power. These entities are unique in their ability to coordinate goods, and control prices and sale of goods, leading to imperfect competition. Industrial regulation affects these entities due to the following reasons: first, monopolistic markets mostly charge a higher price and a lower quantity output than would occur under competitive conditions. Secondly, they can create an inefficient allocation of resources by encouraging underproduction and overpricing of the goods that persist. More allover, they can cause a redistribution of resources from consumers to producers, through reduction in out put and increase in price that leads to a loss of consumer surplus and an increase in monopoly profits. Additionally, due to lack of pressures from competition they tend to have reduced incentives for efficiency, innovation, and quality. Lastly, oligopolies are mainly created through mergers or collusions to fix prices, control output, and restriction of competition all which sum to unfair trade practices. Through industrial regulation, the government is able to keep a tap on these entities by enforcing measures such as competitive law that restricts monopolies, implementation of perfect competition policy and other regulation of prices, profit rates especially in situations where perfect competition is quite impractical. Social regulation is the government restriction aimed at prohibiting harmful corporate behavior and protecting public interests in areas such as health, safety, environment and social cohesion (Gilardi 15). They exist to address certain social problems such as environmental pollution, product safety, public health concerns, discrimination, gender issues, and worker safety. They affect all entities in the four market structures (monopoly, perfect competition, oligopoly, and monopolistic competition) since they are aimed at protecting the public interests and are not there for economic or competition mechanism. These rules govern entities’ expected behaviors and set standards for compliance. In case of non-compliance, the concerned regulatory body can sanction the entity. Additionally, there may be some rewards for compliance. A natural monopoly occurs when a single firm has overwhelming cost advantage over other actual and potential competitors, hence it can supply a good or service to the whole market at a lower cost than other firms can (Mankiw 302). A natural monopoly can occur when the initial investment cost is gigantic especially for firms venturing in public utility business, thus the cost acts as the entry barrier for other enterprises. A natural monopoly can also occur where competitors realize that they can not achieve the same low costs that the monopoly enjoys since after entry each firm would have a smaller piece of the market. In addition, the size of the market may make an industry a natural monopoly. For example a bridge across a river may be a natural monopoly when it’s serving a small population. According to the Economic Theory, natural monopoly is established due to its lower optimal regulation advantage. More so, consumers mostly enjoy lower prices due to enormous economies of scale from quantum fixed cost advantage since as the customers increase the average cost decreases. For example, it is very cost effective for a single company to provide water in town since the average cost of water is lowest when a single firm provides the whole town with water. For industrial regulation in the United States, there are four major antitrust laws that limit market power and discourage unhealthy business practices. These laws include the Sherman Antitrust Act that was enacted in1890 and is characterized by the following mean provisions. Section 1 outlaws all contracts, trusts and other means that are created with intention of restraining trade and section 2 criminalize attempt to create monopoly with culprits being deemed guilty of felony (Emerson 517). Secondly, the Clayton Act was an amendment of the Sherman Act in 1914, precisely highlighting particular offenses and stipulating that the law was applicable when these offenses were substantially reducing competition or creating monopoly. In addition, the Federal Trade Commission Act of 1914 created the FTC and mandated it with responsibility to investigate and challenge unfair practices. Lastly, the Robinson-Patman Act was an amendment of section 2 of the Clayton Act during the Great Depression time, allowing special promotional allowances aimed at limiting price discrimination. In the U.S., several regulatory agencies effect industrial economic and social regulation. For economic regulation, the following three commissions are some of the major economic regulatory agencies; the FTC, the Federal Energy Regulatory Commission (FERC), and the Securities and Exchange Commission (SEC). The FTC ensures that the nation’s markets are competitive by eliminating undesirable practices through enforcement of federal antitrust and consumer protection laws. The FERC has jurisdiction to determine the interstate electricity prices, and regulation of distribution and prices of other energy products. SEC protects investors in stocks and bonds by requiring companies selling their securities to report their operations with so that investors can be more informed. The following federal regulatory commissions are concerned mainly with social regulation: The National Labor Relations Board (NLRB), The National Transportation Safety Board (NTSB), Equal Employment Opportunity Commission (EEOC), Environmental Protection Agency (EPA), and Occupational Safety and Health Administration (OSHA). NLRB safeguards the rights of employees and prevents unfair labor practices; NTSB investigates all major accidents; EEOC enforces the federal employment discrimination law; EPA charged with protecting human health and environment; and OSHA enforces safety and health legislation; Works Cited Cowling, Keith & Sugden, Roger. Current issues in industrial economic strategy. Oxford Road, Manchester: Manchester University Press ND, 1992. Emerson, Robert W. Business Law. 5th edition. NY: Barron's Educational Series, 2009. Gilardi, Fabrizio. Delegation in the regulatory state: independent regulatory agencies in Western Europe. Edward Elgar Publishing, 2008. Mankiw, Gregory N. Principles of Economics. 6th edition. Mason, OH: Cengage Learning, 2011.   Read More