Business Behavior and Public Policy

1. (Business Behavior and Public Policy) Define market power, and then discuss the rationale for government regulation of firms with market power.
In economics, market power is the ability of a firm to alter the market price of a good or service. In perfectly competitive markets, market participants have no market power. A firm with market power can raise prices without losing its customers to competitors. Market participants that have market power are therefore sometimes referred to as "price makers," while those without are sometimes called "price takers." Labor economists have suggested that employee earnings may be relatively higher in firms possessing market power, such as that which may stem from government regulation of prices or entry of firms. We test this hypothesis, which previously has been investigated in the context of industries such as trucking and air transportation, using earnings data for the cable television industry. Our empirical findings suggest that cable TV employees capture some of the benefits producers receive from regulations restricting competition.

  2. (Theories of Regulation) Why do producers have more interest in government regulations than consumers do?
Standards are a fundamental part of our daily lives for a multitude of reasons. They open channels of communication and commerce, promote understanding of products, ensure compatibility, enable mass production, and most importantly they form the basis of achieving health, safety, and a higher quality of life. It is against they have to follow regulation of the government. The consumer just buys stuffs whenever they want, but producer can’t. The government regulates the rule and they must be followed their orders.
  (a) Compare and contrast the public-interest and special-interest theories of economic regulation. What is the “capture theory” of regulation?  
Term capture theory of regulation Definition: Control of a regulatory agency by those entities, usually the...