Advantages and Disadvantages of Deregulation

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Advantages and Disadvantages of Deregulation

Advantages

  • Improves resource allocation - the market becomes more contestable so new firms are more likely to enter the market - the threat of competition or the actual entry of new firms means prices fall closer to the MC as output increases
  • Can be used alongside privatisation of a public monopoly to prevent the privatised firm from becoming a private monopoly
  • Improves efficiency by reducing 'red tape' and bureaucracy (when governments make the most decisions)

Disadvantages

  • Difficult to deregulate some natural monopolies e.g. water or gas, these industries need large infrastructures that are expensive to build and maintain, there is only a need for one of them
  • Can't fix other market failures e.g. negative externalities or immobile factors of production
  • May mean there is less safety and protection for consumers

Evaluation

Deregulation - removing or reducing regulations, removed barriers to entry can increase competition and tackle market failure. It is often used alongside / as part of privatisation - privatising and industry removes barriers to entry. Overall deregulation can improve efficiency and resource allocation, however it cannot be used on all industries and may result in less safety for consumers

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