Deregulation

• Deregulation

  When governments reduce legal barriers to entry in given industries
• Deregulation


  • Reduces barriers to entry
  • Incentivizes more firms entering the market
  • Promotes competition
  • Helps promote efficiencies
• Answering a question on deregulation

  1. Introduce diagram showing movement from uncompetitive to competitive outcomes

  2. Discuss advantages of deregulating an industry:

  • More consumer choice
  • Firms striving for allocative efficiency
  • Increased productive efficiency and X-efficiency
  • Increased dynamic efficiency
• If there was a natural monopoly before deregulation


  Deregulation may lead to a loss of the natural monopoly, increasing average costs and reducing productive efficiency
• With deregulation

  There is no guarantee of increased competition, as local monopolies or oligopolies may form and abuse their power
• In the short run vs long run

  Deregulation may increase contestability in the short run, but local monopolies/oligopolies may reduce contestability in the long run
• If other barriers to entry (technical, strategic) are still high

  New firm entry may still be disincentivized, limiting increased competition
• Strong government regulation is still needed to regulate against anti-competitive behaviour, even after deregulation