Regulatory Commissions of Industrial Regulation - Essay Example

?Running Head: COMPETITION Industrial regulation The term industrial regulation means the intervention of the government to control what happens in a certain industry, like the regulation of the entrance and exit to that market. This control may be the control of the competition and also the pricing issues. Mostly, the government does this regulation through the regulatory agencies and put in place laws that will centrally plan an economy or reduce the possibilities of market failure. The regulations are put in place to help reduce the conflicts in the commercial; procedures like those of maximizing profits. The entities may require raising the profits and the only way they find to do this is to raise the prices of their products where the burden ends up with the people. The government, therefore, comes in and regulates this to avoid conflicts as well as to ensure that the functioning of the business is taken care of. These regulations come with laws like the minimum wage laws which act in the same way as minimum price laws. When this is implemented, workers who produce less than the minimum wages are laid off leading to unnecessary unemployment. The market efficiency and transparency reduces due to these regulations especially if they work against insider trading. The result of this is that the share price becomes higher than that which would have been if the insiders were allowed to use their information. Inadvertently, the outsiders who were to be protected ends up paying higher prices for the same shares and loses more than they would actually have lost. These regulations have led to market imbalance in some cases. If the amount demanded and supplied is the same and the regulations bring about a fall in the prices, then the supply will reduce and the demand will increase. To solve these imbalances, there have arisen cases of black markets and other dubious means of avoiding the effects of the regulations. Monopoly market structures are the most affected by these regulations as they work independently. The government advocates for the customers to have access to their information, set the price controls and also regulate their operations in the countries of operations. The effect of these is that new markets are opened that bring about competition and thereby increased efficiency and quality services. There is liberalization which is promoted that leads to the mobility of labor, financial capital, goods and services. These bring about new businesses into the industry and intensify competition. [Djankov, Simeon et al, 2002] The competitive market structures are effected through the laws that govern their operations and competitive strategies. Certain acts are prohibited like setting very low prices to accrue short term losses at the expense of the other competitors so that they may even end up closing down. The regulations also govern the number of similar businesses in a certain area. The monopolistically competitive markets have been forced to provide enough information regarding their products. In these markets the consumers have relied on the advertisements which sometimes have given a super perspective of the products. The government regulation has had to control the prices in these firms because in the long run, these firms set prices that are very low to kick out their rivals from the market through their slightly differentiated products which is prohibited. Sometimes these firms set high prices especially because the marginal cost is less than the price in the long run. In a monopsony, the government works together with a monopsonist consumer to ensure that the partial regulations are in place to work at the right time. The government analyses how the consumer is to be protected and also when there should be the intervention from other sources. The second market structure that also faces regulation is an oligopoly market structure. This market structure involves a situation which falls in between perfect competition and monopoly. It refers to few firms supplying a given commodity to many customers. It is the most common type of market structure. An example of such a market structure in the US is the Cigarette industry which is dominated by R.J.Reynolds, Philip Morris, Lorillard, and Brown & Williamson. These types of firms may form cartels while making price decisions and thus, need regulation. It has been a problem for several decades about how they approach their advertising of products that they sell. Social regulations These are the regulations imposed by the government to prohibit or to discourage corporate harmful behavior like environmental pollution, endangering of the workers, discrimination and product safety, and also to promote those that are deemed socially desirable. This is meant to dictate the employment process, the conditions of employment and the design of the products. The social regulations are also meant to reduce discrimination with regard to sex, age, race or disabilities. It advocates for fair treatment of all the workers and that promotion is done on the basis of merit and not otherwise. It also covers the employers’ liability of providing the workers with conducive working environments that includes compensation for those injured in the course of duty and also extension of benefits or allowances. Monopolists have been well known to produce substandard products due to lack of competition. The social regulations have come to check on that and to ensure that these are checked before they reach the consumers. In addition t this, they have been in the forefront to hike the prices of their commodities to unimaginable prices to earn supernormal profits and this has also been checked and controlled. The government may either sub-break it or convert it into a public owned company. Entities that have their production combined with a lot of waste disposal that pollutes the environment have been put on the limelight and bodies like the environmental protection agency is there to give checks and balances to these entities and to solve externalities and information inadequacies. [Vogel, 1981] Natural monopolies These are firms which can be able to supply the total demand in a market at a lower price than two or more other firms due to large economies of scale in their production emanating from the unique production patterns, raw materials or other factors. The plant may also be too large in such a way that the demand is lower than its capacity and entry of another firm experiences decreasing returns to scale or where the long range total cost curve decreases in the long run demand curve. This can be prolonged if the government applies no restrictions. The justification for the natural monopolies is the presence of economies for scale for the one producer of that product. There may also be the sole access to the raw materials or the technology, collusions with the suppliers or the customers to eliminate competition, use of non-market means and even legislation that sees to it that the other competitors are eliminated. Examples are electric power transmissions that have experience high infrastructural costs which are fixed and would therefore be inefficient to have more than one firm in the same area or have electric wires running parallel to the same homesteads. Antitrust are legislations that are designed to prevent formation of monopolies or cartels, which would kill the small businesses or discriminate the customers. These protect the public from unfair practices from the corporations. There are agreements between competitors that are prohibited by the law which state that the competitors should not merge to control the market, they should also not rig the bids and should not agree not to encroach a market of the other so that monopolies are not formed. The laws have in them the contracts between the buyers and the sellers such that the sellers can just sell the products which are beyond a certain quality and also have to ensure that the adverts are not misleading to the consumers. These laws also dictate that there should not be mergers that will allow companies to have unfair advantage over the others in the same market. This law also prevents the formation of acquisitions. The laws also prevent the formation of monopolies through the companies which may offer predatory prices due to their large cash reserves hence eliminating competitors even without formation of contracts. The Sherman antitrust act forbade all acts of trust that would lead to a restraint of trading. The Clayton act forbade the discriminatory prices and allowed the customers to buy their choice and as well forbade the competitors from buying the others stock in an attempt to create a monopoly. The competition act was formed to review the proposed mergers and to ensure that competition was eminent for provision of quality products. This was followed by The Robinson-Patman Act of 1936 which protected the independent retailers from unfair competitive acts conducted by chain stores and against anticompetitive discrimination through prices. The Federal Trade Commission Act of 1914 and 1938 in its amendment advocated for acceptable competitive conduct and prevent aggressive competition and also investigated unfair business practice that would render one firm to have an unfair advantage over the others. The competition act was formed to review the proposed mergers and to ensure that competition was eminent for provision of quality products. Regulatory commissions of Industrial Regulation The Federal Communications Commission (FCC) The FCC is an industrial regulation commission that controls the communications industry in the US. More specifically, it deals with the regulation of international communications by wire, television, radio, cable and satellite. It was established in the year 1934 by the Communications Act. This commission acts as an independent agency in the US and its works are overseen by the Congress. FCC governs using the Communications Act. Federal Energy Regulatory Commission: [FERC]: This regulates the transmission and sale as of electricity including the resale in interstate commerce according to the interstate commerce act. It also reviews the citing applications of the electricity ants by even reviewing their mergers and acquisitions. It also ensures that the accounting and financial regulations compliance is done. Federal Trade Commission [FTC]: This commission ensures that free as well as efficient markets are maintained through the practices involved so that consumers remain unharmed. This is applied in a free market scenario so as to protect consumers by applying various laws which keep deception, fraud and unfair practices of business at bay. (enotes.com, 2011) FTC is known to regulate such markets as the Cigarette advertising. There have been issues of controversy in a period running for some time in the past about how cigarette advertising is being run. To this FTC has played a very big role as a regulatory authority to the industry in a bid to protect consumers. This is as McAulif puts it in his works. It applies such rules as the 1971 Broadcast Advertising Ban. (McAulif, 1995) These commissions ensure that consumers of various products in the US are protected. To this, they ensure that the functioning of the firms is regulated and cannot indulge in activities that will infringe the rights of the individuals or the consumers. In essence, this brings in the aspect of the governance by the people, for the people and by the people. There is control of the performance by the auditing that will be done out of the financial books which must show a clear picture of the firms. Regulatory commissions There are five federal regulatory commissions that govern social regulations. These are Equal Employment Opportunity Commission [EEOC]. This follows on to ensure that the women and the weak in the society are given equal opportunities. They conduct law awareness and ensure that there is no violation to these minorities. The Environmental Protection Agency [EPA]: This ensured that the hazardous waste sites are cleaned up and that the air and water pollution is controlled. The Occupational Safety and Health Administration [OSHA]: This was enforced to develop regulations for workplace safety. The Consumer Products Safety Commission [CPSC]: This was forced to enforce safety regarding potentially dangerous implements like lawnmowers, hand tools, flammable clothing and children’s toys among others. National Highway Traffic Safety Administration [NHTSA]: The regulation imposes the individuals and private firms to achieve government purposes by advocating for better and cheaper goods and services and ensuring that there is clean water, safe products and safe workplaces. It attracts criminal penalties and even fines for failure to meet the regulations. [Bernstein, 1955] References: Bernstein, Marver H. (1955). Regulating Business by Independent Commission, Princeton University Press. Djankov, Simeon et al (2002), "The Regulation of Entry", Quarterly Journal of Economics 117. econ.yale.edu. (2011). “Oligopoly.” Retrieved 18 November 2011 http://www.econ.yale.edu/~gjh9/econ115b/slides11_4perpage.pdf enotes.com. (2011). “Encyclopedia of Everyday Law.” Retrieved 18 November 2011 http://www.enotes.com/everyday-law-encyclopedia/federal-trade-commission-regulation McAuliffe, Robert. (1995). “The FTC and the Effectiveness of Cigarette Advertising Regulations.” Retrieved 18 November 2011 http://rashaahmed.com/Documents/Tobacco%20ad.pdf Vogel, David (1981), The New ‘Social’ Regulation in Historical and Comparative Perspective, in Regulation in Perspective: Historical Essays pp. 155–85. Read More