Business Structure, Regulation, and Deregulation

During the first 50 years of this century, the relative size of the manufacturing sector consistently increased, while the agricultural sector declined. Since 1950, a new trend has developed. The relative sizes of both the service and government sectors have increased, while agriculture and manufacturing have generated a shrinking share of our national income.

It is not easy to categorize each industry as competitive or noncompetitive. Nevertheless, empirical research on industrial structure suggests that roughly 40 to 50 percent of our economy is highly competitive, in the sense of rivalry. Another 20 percent of our output is generated by unregulated firms in industries of medium or high concentration Highly regulated industries account for nearly one quarter of our total output; public-sector firms generate the remainder.

Foreign imports are an important and growing competitor in many  industries. Import penetration increased from 6.5 percent in 1975 to 10.9 percent in 1984.

Antitrust legislation seeks to (a) maintain a competitive structure in the unregulated private sector and (b) prohibit business practices that are thought to stifle competition.

The Sherman, Clayton, and Federal Trade Commission Acts form the foundation of antitrust policy in the United States. The Shermam Act prohibits conspiracies to restrain trade and/or monopolize an industry. The Clayton Act prohibits specific business practices, such as price discrimination, tying contracts, exclusive dealings, and mergers and acquisitions (as amended), when they "substantially lessen competition or tend to create a monopoly." As it has evolved through the year, the Federal Trade Commission is concerned primarily with enforcing consumer protection legislation, prohibiting deceptive advertising, ad investigating industrial structure.

Most economists believe that antitrust policy in the United States has promoted competition and reduced industrial concentration, but not to any dramatic extent.

The breakup of AT&T reduced the cross-subsidy of local telephone service by long-distance ratepayers, although the dispute about how much fixed cost should be paid by long-distance users remains unsettled.

To date, economists have been unable to develop a complete theory of regulation. However, economic analysis does suggest that: (a) the demand for regulation often stems from special interest and redistribution considerations rather than from the pursuit of economic efficiency; (b) regulation often fails to adjust to changing market conditions; and (c) with the passage of time, regulatory agencies are likely to adopt the views of the interest groups they are supposed to regulate.

Traditional economic regulation has generally sought to fix prices and/or influence industrial structure. During the 1970s, changing market conditions and empirical studies generated widespread dissatisfaction with economic regulation. Significant moves toward deregulation were made in the late 1970s, particularly in the trucking and airline industries. New entrants, intense competition, and discount prices have accompanied the deregulation of these industries.

In recent years, economic regulation has been relaxed, and social regulatory activities have expanded rapidly. Social regulation seeks to provide a cleaner, safer, healthier environment for workers and consumers. Pursuit of this objective is costly-higher product prices and higher taxes accompany such regulation. Since the costs and particularly the benefits are often difficult to measure and evaluate, the efficiency of social regulatory programs is a controversial topic, and the topic of much current research.