deregulation

• Deregulation occurs when governments reduce legal barriers to entry
• Deregulation incentivizes more firms to enter the market by reducing barriers to entry.
• The deadweight loss diagram in deregulation shows a shift towards more competitive outcomes
• What diagram is commonly used to illustrate the outcomes of deregulation?

  Deadweight loss diagram
• What are the advantages of deregulating an industry?

  More consumer choice
• Allocative efficiency in deregulation occurs when firms produce where price equals marginal
• What are the two types of efficiency that are likely to increase with deregulation?

  Productive and X-efficiency
• Firms strive to minimize costs to maximize profits in a deregulated market.
• Dynamic efficiency in deregulation involves reinvesting profits into innovation
• Why might deregulating a natural monopoly reduce productive efficiency?

  Loss of economies of scale
• Wasteful duplication of resources can lead to allocative inefficiency after deregulation.
• In a natural monopoly, it is more efficient for one firm to dominate due to economies of scale
• What is the risk of local monopolies forming after deregulation?

  Higher prices
• The success of deregulation depends on short-run versus long-run outcomes.
• If local monopolies form after deregulation, market contestability may decrease in the long
• What technical or strategic barriers to entry might prevent new firms from entering a deregulated market?

  High capital costs
• Strong government regulation is necessary in deregulated markets to prevent anti-competitive behavior.