Chapter 8: Economic Deregulation

Three streames of economic research and policy analysis dealing with different aspects of regulation reached a confluence in the 1970s.

• The firsr, and most substantial, focused on the fact that the widely distributed burdens imposed by economic regulation.
• The second stream dealt with the fundamental nature of the regulatory process.
• The third focused on the cost of regulation.

It is evident that a great deal of the traditional economic regulatory apparatus has been cut back.

• 1978-Transportation: Airline Deregulation Act gives carriers freedom to decide fares and routes and phases out CAB.
• 1984-Telecommunications:AT&T agrees to divest local operating companies as part of antitrust settlement with Justic Department.
• 1999-Financial institutions: The Gramm-Leach-Bliley Act repeals the Glass-Steagall Act restricting banks from providing other financial services.

Inevitably, the wrenching changes brought about by deregulation have generated problems for epecific companies. Several types of effects on the competitive structures of the deregulated industries have emerged to date

• The range of variability of performance among the companies in the deregulated industry increases.
• The most profitable products come under substantial price pressure.
• The resulting industrywide profit squeeze forces personnel reductions and other cost-cutting efforts.

Financial institutions have responded to rate deregulation by closiing branch offices and reducing payrolls

Two types of winners emerge from deregulation

• category consists of companies that tend to serve national markets with a full line of products and services.
• category of winners under deregulation is low-cost producers that focus on a highly price-sensitive segment of the market.

The major winners underderegulation are the customers of the previously regulated industries.

Source:Business and Government in the Global Marketplace (7 Edition Murray L. Weidenbaum)