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An Introduction to regulation, it ’ s significance and rationale

An Introduction to regulation, it ’ s significance and rationale. Kevin Hinde. Introduction. Regulations dominate all aspects of our private and organisational lives and we have to work with regulatory environments and the policies that shape future rules, laws and regulatory institutions.

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An Introduction to regulation, it ’ s significance and rationale

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  1. An Introduction to regulation, it’s significance and rationale Kevin Hinde

  2. Introduction • Regulations dominate all aspects of our private and organisational lives and we have to work with regulatory environments and the policies that shape future rules, laws and regulatory institutions. • The world is constantly changing and organisations need to understand regulatory frameworks in order to formulate and implement strategies.

  3. A Definition of Regulation • “refers to the various instruments (both formal legal instruments and such informal tools as ‘guidance’) used by government to control some aspect of the behaviour of a private economic actor. Regulation can also include rules issued by non-governmental bodies (e.g. self-regulatory bodies) to which governments may have delegated regulatory powers. All regulations are supported by the explicit threat of punishment for non-compliance.” OECD, 2001.

  4. Types of regulations • Economic (Structural) Regulation • Social (Conduct) Regulation • Administrative Regulation • We concentrate on regulations relating to competition and protecting consumers.

  5. Why might we regulate? • Planning • Natural Monopoly • Distributive and Social Justice • Market Failure

  6. Types of Market Failure • Public Goods. • Externalities. • Information Asymmetries. • Market Dominance and the Abuse of a Dominant Position.

  7. Company 1 High Price Low Price Low Price Company 2 High Price Using Game Theory to explain regulation (2, 2) (4, 0) (0, 4) (3, 3) Alter the payoff to (1, 1) by imposing fines of £2m each on the cartel

  8. How much regulation? • should occur as long as the marginal benefits equal the marginal costs of intervention, but the data problems involved are enormous. • ‘Competition where possible, regulation where necessary’. A political Judgement? • It should look to improve allocative, productive and dynamic economic efficiency. • Does this always require the state? • Property Rights and Public Choice views • How about self-regulation?

  9. Competition Institutions

  10. European Institutions • European Parliament and Council of Ministers • European Commission • DGIV • Articles 81 and 82 • Merger Regulation

  11. UK Institutions • Office of Fair Trading • Sector Regulators • OFWAT, OFGEM, OFTEL, • Competition Commission • Fair Trading Act 1973 • Competition Act 1998 • Chapter I Prohibition • Chapter II Prohibition

  12. Independence Accountability Transparency Clarity Speed Appeals Procedure Simplicity Periodic Review Consistency Commitment Fairness Targeted Principles of good regulation

  13. Some potential benefits of good regulation • Overall Consumer Gains • Manufacturing • Telecommunications and Utilities • Air Transport • Universal Service

  14. Reflection • Take some time to think through the issues. • Do the required reading. • Complete the activities associated with this lecture.

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