Deregulation is the process of removing or reducing state order,typically in the economic globe. It is the undoing or repeal of governmental regulation of the economy. It became common in advanced industrial economies in the 1970s and 1980s, as a result of new trends in economic thinking about the inefficiencies of government regulation, and the risk that regulatory business would be controlled by the control industry to its benefit, and thereby hurt buyer and the wider economy.

1. Regulations & Deregulation

2. What is Social Regulation?
 Regulation consists of rules identifying
permissible and impermissible activity on the
part of individuals, firms, or government
agencies.
 Social Regulations are aimed at restricting
behaviors that directly threaten public health,
safety welfare or well being.

3. What is Economic Regulation?
 The prescribing of prices and output levels for
entire industries.
 Natural Monopolies
 Railways
 Telecommunications
 Utilities
 Mail Delivery

4. The Fair Rate of Return
 Regulation is used to make price and
supply much like what a perfectly
competitive industry would provide.
– At Pm too little output and too much
profit for a firm is yielded.
– At Pr the company produces Qr but is
subject to make a loss because the
demand lies below the average total
cost.
– Regulation provides a cost of Pf which
is set at a zero economic profit, where
demand and average total cost
intersect.
LEGEND
 ATC = Long-run average total cost
 D = Demand
 MC = Long-run marginal cost
 MR = Marginal revenue

5. Problems with Regulation
Price is set at a percentage of
average cost.
 Creates Negative Incentives
 Increase costs
 Run inefficiently
 Acquire excess capacity
Money is wasted in order to
increase rates to increase profits.

6. What is Deregulation?
 The government removes, reduces, or
simplifies restrictions on businesses.
 Simpler regulations lead to more
competition, which increases
productivity.

7. Airline Deregulation Act of 1978
 The main purpose of the act was to remove
government control from commercial aviation
and expose the passenger airline industry to
market forces.

8. Benefits of Deregulation
 The airline industry expanded and they were
able to attract travelers with discounts, more
flights, and lower rates.
 Trucking companies were able to set their
own rates, routes, and carry more freight.

9. Effects of Deregulated Industries
 Many airlines and trucking
firms became bankrupt due to
the increased competition.

10. Airlines Affected by the Deregulation
Act of 1978
 Eastern Airlines
 Pan Am
 TWA
 Continental

11. Privatization
 Occurs when a government-run business
is transferred to a privately owned
business.
 Many private firms are providing garbage
services, water services, and road
building maintenance. These are
contracted out (privatized) by the city or
state.

12. Regulation and Deregulation
in other countries

13. Nationalization
 Definition: Government takes over and
operates an industry.
 It was preferred rather than regulation as
a solution to natural monopoly in many
regions in the world.
 Issue: Compensation from the
government to the private company
being bought out.

14. Privatization
 Definition: transfer of ownership from
the public sector to the private sector.
 Three types:
1. Wholesale privatization – entire publicly owned firm
is transferred to private ownership.
2. Contracting out – specific aspect of a government
operation is carried out by private firm.
3. Auctioning – the rights to operate a government
enterprise go to the highest private-sector bidder

15.  Since 1980, more than 80 countries have
launched efforts to privatize their state-
owned-enterprises (SOE).
 since 1980, more than 7000 SOEs have
been privatized worldwide.
Privatization (cont.)

16. Privatization (cont.)
 Issue:
 Pro-privatization believes that private markets
actors can be more efficient due to free market
competition.
 Anti-privatization argue that that governments
ensure the efficiency of their enterprises in order
to gain potential voters.