Question

The federal government regulates labels, warranties, and consumer products. Without government regulation, what abuses are likely to occur?

Answer 1

GOVERNMENT REGULATION

INDUSTRIAL REGULATION
Industrial regulation pertains to the government regulation of firms’ prices or rates within industries. These regulations are in existence to prevent companies from forming a monopoly, to promote competition and achieve fairness. In the mid 1800s, as industry grew, many industries began to take on the look of a monopoly; using questionable business tactics and charging their customers high prices. The customers and businesses that patronized these industries began to complain to the government and the government responded with the Sherman Act of 1890. The objective of industrial regulation is for a regulatory agency to keep tabs on an industry's prices and products to ensure that a monopoly, that takes advantage of consumers, isn't formed. As industries or companies are regulated, competition becomes essential, which in turn keeps prices to consumers more affordable. The entities affected by industrial regulation are oligopolies and monopolies. Monopolies, as stated above, occur when a single company owns all or nearly all of the market for a given type of product or service. An oligopoly refers to a market structure where the suppliers have created some form of alliance and are acting as one. Without regulation commodity prices would soar, because suppliers would have the power. This is where industry regulations come in to play; they aim to control monopolies and oligopolies and to prevent them from charging unfair and outrageous prices from their products. SOCIAL REGULATION Social regulations are those regulations that deal with the “conditions under which goods and services are produced, the impact of production on society, and the physical quality of the goods themselves” (McConnell & Brue, 2008, p. 384). Social regulation is aimed at restricting behaviors that directly threaten public health, safety, welfare, or well being. There is a great deal more entities affected by social regulations than by industrial regulations for these regulations affect all industries. Social regulations affect employee hiring practices, environmental controls, health and safety regulations, and restrictions on labeling and advertising to name a few things. Entities affected by social regulation are food and drug producers (FDA), employers (EEOC and OSHA), and basically all industries that produce goods for public consumption and use or regulated by the EPA and CPSC. Pharmaceutical manufacturers are affected financially when the FDA holds back a new drug for further testing. For example, on October 3, 2012, the FDA asked Teva Pharmaceuticals to withdraw its antidepressant drug Budeprion XL 300 after testing showed the drug did not properly release its key ingredients. Or when an industrial manufacturer is impacted by EPA regulations on the disposal of pollutants or hazardous or non-hazardous waste. These sort of regulations affect entities financially and socially. NATURAL MONOPOLY A natural monopoly is a type of monopoly that exists as a result of the high fixed or start-up costs of operating a business in a particular industry. Because it is economically sensible to have certain natural monopolies, governments often regulate those in operation, ensuring that consumers get a decent deal (Investopedia "Natural Monopoly", n.d.). For example, if you've got a utility company which supplies all the service for a certain area, the prospect of a new company competing with those existing companies is difficult at best. In instances like these, having multiple companies competing could end up being significantly more costly than having a natural monopoly provide the service. Although deregulation of a natural monopoly, like utilities, opens up the market and promotes competition, it is generally beneficial for the economy as a whole to maintain natural monopolies because they can attain a lower production cost than other competitors in the same industry (Investopedia "Natural monopoly", n.d.). Indianapolis Power and Light is a natural monopoly that holds the entire electricity market share in Indianapolis. They have no competitors because the costs of establishing a means to produce electrical power and supply it to each household can be very large. Even though many consumers believe that companies like this may be tempted to exploit their natural monopoly in order to maximize profits, the overall belief is that the efficiency in production is better served by a single company supplying the whole market. ANTITRUST LAWS There are four major pieces of legislation that constitute the basic laws relating to monopoly structure and conduct; known as the Antitrust Laws (McConnell, Brue & Flynn, 2011, p. 375). In response to monopolies, cartels, and trusts, Congress passed two major pieces of legislation: the Sherman Act and the Clayton Act. The Sherman Act is a federal statute passed in 1890. It was the first major legislation passe
d to address oppressive business practices associated with cartels and oppressive monopolies. The Clayton Act of 1914 simply sharpened and clarified the general provisions of the Sherman Act and regulates practices that are deemed harmful to fair competition; price fixing, exclusive contracts, tying agreements, mergers and acquisitions. The Federal Trade Commission Act of 1914 prohibits unfair methods, acts, and practices of competition in interstate commerse. But more than anything, it established the Federal Trade Commission to police violation of the act and to enforce the Clayton and Federal Trade Commission Acts, as well. The Celler-Kefauver Act of 1950 amended the Clayton Act and targets mergers where companies purchase suppliers, and occasionally competitor's suppliers, in order to secure production. It added vertical mergers and conglomerate mergers to the possible list of antitrust violations. REGULATORY COMMISSIONS OF INDUSTRIAL REGULATION The three main regulatory commissions of industrial regulation are the Federal Communications Commission (FCC), the Federal Energy Regulatory Commission (FERC) and the State Public Utility Commissions. The FERC, established in 1930, regulates electricity, gas pipelines, oil pipelines, water and power sites. The FCC, established in 1934, regulates telephones, television, cable television, radio, CB radio, telegraph, and ham operators. The State Public Utility Commissions of various years that regulate gas, electricity, and telephones in each state (McConnell, Brue, Flynn, 2011, pg. 382). REGULATORY COMMISSIONS OF SOCIAL REGULATION The five primary federal regulatory commissions that govern social regulation are Food and Drug Administration (FDA), Equal Employment Opportunity Commission (EEOC), Occupational Safety and Health Administration (OSHA), Environmental Protection Agency (EPA), and Consumer Product Safety Commission (CPSC). The FDA, esatblished in 1906, regulates the safety and effectiveness of food, drugs, and cosmetics. The EEOC, established in 1964, regulates the hiring, firing, and promotion of workers. OSHA, established in 1971, regulates industrial health and safety. The EPA, established in 1972, regulates air, water, and noise pollution. The CPSC, established in 1972 as well, regulates the safety of consumer products.