Deregulation 

Learn why deregulation can improve economic efficiency

This is the opposite of regulation. So, it means when the government reduces the or removes regulations in a market/industry. This can lower barriers to entry, which makes it easier for new competitors to join the market.

Deregulation is particularly good when it is used alongside privatisation - removal of entry barriers can help more firms join the market to compete with a privatised firm

ADVANTAGES

More efficient use of scarce resources
Increases the chance of competition via decreased barriers to entry. More competition, lower prices, higher output [economic efficiency].

Used with privatisation, it is more effective

When used with privatisation it can be more effective. When a large public firm gets privatised, it may have no competition. So, in essence a monopoly may be formed. Deregulation attracts more competitors to the market.

Reduces “red tape” and bureaucracy

Lessens the hardship and wasted labour time involved due to unnecessary red tape.

[Red tape are procedures and rules that seem pointless and just delay results]

DISADVANTAGES

Some industries are difficult to deregulate

For example, natural monopolies need regulating because there is only room for one firm in the entire industry.

Other market failures like externalities cannot be fixed with deregulation.

Deregulation could also mean less safety and protection for consumers.

Deregulation makes the market “freer”. In a free market economy, everybody lacks care and responsibility for third parties. Large firms, in particular, could abuse this power.

So, in summary, we have learned:

• Definition of deregulation

• Why deregulation may be a successful policy

• Why deregulation may not be a successful policy

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