Deregulation. Deregulation is the removal of government controls (red tape, laws and regulations) over markets.
Benefits of Deregulation
- More firms can enter the market, increasing competition. So incumbent firms must become productively efficient and decrease costs to compete with rivals.
- Deregulation means there is more potential competition so firms should be X-efficient.
- Firms should set low prices and become allocatively efficient, increasing consumer surplus.
Costs of Deregulation
- Deregulation could lead to ‘creaming’, that is, only the most profitable services are provided. For example, deregulating an industry could lead to firms neglecting poorer consumers.
- Cutting regulations may lead to lower quality goods and/or the exploitation of workers.