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What do We Understand About the Economics of Regulation: The Effects of U.S. Transport Deregulation

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Mainstreams in Industrial Organization

Part of the book series: Studies in Industrial Organization ((SIOR,volume 6))

Abstract

In a 1981 overview of the theory and practice of economic regulation [47], Joskow and Noll list the following as the core elements of current approaches to understanding the nature and behavior of traditional regulated industries:

  1. 1.

    The regulation of industries with competitive structure causes inefficiencies associated with excessive service quality. In this theory, regulated firms can not enjoy the profits resulting from high rates, but dissipate the profits by directing rivalry towards service quality rather than price.

  2. 2.

    Optimal prices for regulated natural monopolies may be unsustainable. Regulation of such industries may thus require artificial entry restrictions. In some other cases, natural monopoly pricing may be adequately constrained simply by the threat of entry, thus making regulation unnecessary. (This approach has become known as the ‘theory of contestable markets’ [12].)

  3. 3.

    Peak-load-pricing and related models are useful for understanding a wide variety of practices of regulated industries.

  4. 4.

    The regulation of industries with monopoly structure may cause Averch—Johnson type of incentives toward excessive capital intensity.

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  1. Kenneth D. Boyer
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Editors and Affiliations

  1. University of Amsterdam, The Netherlands

    H. W. de Jong

  2. University of Michigan at Ann Arbor, USA

    W. G. Shepherd

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Boyer, K.D. (1986). What do We Understand About the Economics of Regulation: The Effects of U.S. Transport Deregulation. In: de Jong, H.W., Shepherd, W.G. (eds) Mainstreams in Industrial Organization. Studies in Industrial Organization, vol 6. Springer, Dordrecht. https://doi.org/10.1007/978-94-017-0493-9_14

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  • DOI: https://doi.org/10.1007/978-94-017-0493-9_14

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