Deregulation

Question 1

Define deregulation

Answer 1

when governments reduce legal barriers to entry in given industries (decrease BTE and increase comp)

Question 2

Advantages of deregulation

Answer 2

• more firms = more choice - incentive to be allocatively efficient
• increase productive efficiency / reduce x-inefficiency
• increase dynamic efficiency - small SNP - reinvested to stay ahead of competition

Question 3

Disadvantages of deregulation

Answer 3

• loss of natural monop and their EOS - (increase av, decrease productive efficiency, wasteful duplication of resources = decreased allocative efficiency)
• formation of oligopolies and local monopolies (abuse power, higher prices, lower quantities, allocative/productive ineffiency)
  ^^ seen with bus markets

Question 4

Evals for deregulation

Answer 4

• short run v long run outcomes (long run - local monops/olis falling contestability will fall - defeats point)
• depends on other height of barriers to entry - e.g technical, strategic e.t.c
• ^^ strong level of government regulation