Essay, 4 pages (900 words)

Economics 2

Industrial or economics regulation can be defined as government regulation that sets prices or conditions of entry of firms into an industry (Taylor). Industrial regulations affect the market by creating constraints that affect market conditions. If the government imposes a new tariff on oranges the price of oranges will rise. This is an example of an industrial regulation. The market structure in which a firm operates affects the impact of industrial regulations. Monopoly is a market structure that is affected by industrial regulations. Another market structure that is affected by industrial regulations is oligopolies. An example of an oligopoly is the airline industry. The airline industry is regulated by several agencies. There regulations that protect consumers against noise pollution. The prices of the fuel that the airlines utilized are regulated. The type of goods that a person can carry into an airplane is regulated. Aircrafts must comply with safety regulations. Oligopolies are market structure in which there are limited numbers of participants, while monopolies have only one player. The reason regulations are so important in these two market structures is because the general public must be protected from collusion and unfair practices from these firms. In monopolies regulations become more critical due to the power that the monopolist holds. Without regulation a monopolist could abuse his power and charge super high prices since competition is non-exist. Industrial regulations protect the customers, but its implementation raises costs. Companies at times have to invest money in new equipment to comply with regulations. Regulations that increase labor costs affect the profitability of companies. These costs are passed on the customer in the final price of the service or product. Regulations affect the cost structure of firm in an adverse way. For example in the airline industry the new security regulation affected the operating protocols of the firm which increase the time to perform process and the added equipment and labor requirement to perform the function. When a new regulation is imposed in one country the firms in that country are faced with a constraint that lowers the profitability of the firm in comparison with companies located in other countries which does not have those regulations. Social regulation covers environmental controls, health safety regulations, and restrictions on labeling and advertising (Taylor). Social regulation serves the purpose of protecting several stakeholder groups including employees, the environment, and consumers. Employees are protected by social regulation from employers. There are safety and health regulations that employers must follow to provide a safe environment for employees to work in. Social regulation protects the environment by monitoring industrial activity to ensure that corporations do not pollute the environment. Social regulations impact the budget of companies because it takes money and resources to enforce them. There are some social regulations such as the OSHA statutes which affect all industries. A natural monopoly can be defined as a situation where one firm due to unique raw materials, technology, or other factors the firm can supply the market’s entire demand for a good or service at a lower price than two or more firms can (Businessdictionary, 2011). The most common natural monopolies are utility companies. Utility companies create natural monopolies in specific regions because it requires a lot of infrastructure and investment. These companies are able to turn a profit due to economies of scale. Natural monopolies are formed when there are large fixed cost and small marginal costs. The reason natural monopolies should exist because it is the only way to attract the private sector into industries that would otherwise the public sector would have to serve the community. There are several antitrust legislations that affect the business industry in the United States. The first important antitrust legislation was the Sherman Act of 1890. This legislation made price fixing an illegal practice. Another important piece of antitrust legislation was the Clayton Act of 1914. The act made it illegal to charge different prices to different buyers for the same item. In 1936 another important antitrust legislation was developed called the Robinson-Patman Act. The Robinson-Patman Act of 1936 amends section two of the Clayton Act of 1914 which was designed to prevent monopolies by catching early stage practices leading to corporate mergers (Enotes, 2011). A fourth antitrust legislation is the Celler-Kefauver Act of 1950. This act protected the marketplace by not allowing companies to buy up the assets of the competition. Three major regulatory commissions of industrial regulations are the Federal Communication Commission, the Security and Exchange Commission (SEC), and the Federal Energy Regulatory Commission. The Federal Communication Commission regulates interstate and international communication. The Security and Exchange Commission regulates the financial reporting of public companies. The Federal Energy Regulatory Commission monitors the interstate aspects of utility companies. Five social regulatory commissions are the Environmental Protection Agency (EPA), Food and Drug Administration (FDA), Occupation Safety and Health Administration (OSHA), Federal Aviation Administration (FAA), and the Consumer Product Safety Commission (CPSC). The EPA regulates the activity of businesses to ensure that their practices do not hurt the environment. The FDA regulates the pharmaceutical companies and the food producing companies to ensure medicine and food sold in the market are safe to consume. OSHA protects employees in the workplace. The FAA regulates the airline industry. The CPSC exists to ensure consumer products are safe. References Businessdictionary. com (2011). What is a natural monopoly? Retrieved April 23, 2011 from http://www. businessdictionary. com/definition/natural-monopoly. html Enotes. com (2011). Robinson- Patman Act (1936). Retrieved April 23, 2011 from http://www. enotes. com/business-finance-encyclopedia/robinson-patman-act Taylor, J. Economics (3rd ed.). Stanford University. Retrieved April 23, 2011 from http://college. cengage. com/economics/taylor/econ/3e/complete/students/add_topics/ch12_econ_reg. html

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