Contrast the public interest theory of regulation with the legal cartel theory of regulation
What will be an ideal response?
The public interest theory of regulation arose because of “natural monopolies” that if left unregulated would charge higher prices and produce less output than was deemed beneficial for society. Regulation will help ensure that natural monopolies produce at a level of output that takes advantage of the lower unit costs resulting from economies of scale. This perspective views regulation as a way to control natural monopolies so that they better serve the public interest in the form of lower prices and more output.
In contrast, the legal cartel theory of regulation views regulation as serving the monopoly interest rather than the public interest. Natural monopolies or oligopolies may want to be regulated because it protects them from becoming owned by the public. Even more important, however, is when ownership remains private. In this case, regulation offers firms a form of a legal cartel that protects them against the rigors of competition. Also, a private cartel may be unstable, but a cartel that has the sanction of government can exist for a long time. The evidence to support this view comes from the strong support for regulation given by businesses in such industries as the airlines, railroads, and trucking.
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