Perfect Markets
- Markets are an old but remarkably efficient decision-making
mechanism.
- Markets ensure the optimal
allocation of ressources.
- Markets work best when the five market forces keep each other
in balance.
The need for a watchdog
- Many market players try constantly to shift the balance of power
to their benefit.
- A market player might try to control inputs, access or distribution
to extract a higher price for his products or services.
- Collusions to manipulate the market to the benefit of a special
interest group are always at the detriment of the general consuming
population.
- A higher authority is needed to protect the market against such
excesses.
- Market regulation is a fine balance.
- Too much regulation imposes an arbitrary, less than optimal
condition.
- Not enough regulation can leave one market force to become predominant
and abuse its power to impose a condition that is less than optimal
for the general public, but profit maximising for itself.
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Examples of necessary regulatory intervention
- In 1983 AT&T has been broken up in a long distance company
and a number of local companies to encourage competition. Technology
has made the difference between local and long distance calls
irrelavant and today, the former baby bells are acquiring long
distance phone companies.
- Microsoft has attracted regulatory attention with practices
that effectively blocked its competitors from access to distribution
channels. It was lucky enough to escape a break up.
- It is somewhat strange that here in the region, dozens of gasoline
stations raise their prices of the same amount and at the same
time. As long as there is no hard evidence of collusion, this
practice will continue.
Examples of unnecessary regulatory intervention
- Most consumers know that fast food is unhealthy. But they like
it because it is cheap. A regulator could force fast food restaurants
to produce healthier food, but this would come at a higher price.
Today, consumers have the choice between cheap fast food and healthier,
more expensive food. If a regulator would step in and regulate
the fast food industry, consumer would no longer have this choice
and be forced to either stay at home or pay more to eat out at
the restaurant.
- Voice over IP is a technology that offers cheaper phone calls
than traditional long distance carriers. It is less reliable.
The FCC (in America) or another national regulator could regulate
the industry and impose reliability standards which would make
VoIP calls more expensive. Fortunately, the FCC has decided for
a hands off approach, which let consumer more choice between price
and quality.
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