Economic regulations are some of the most important aspects of the economy in any country. These control measures have been found to regulate the way the economy is supposed to grow and to create a sense of direction in the economy. In most cases, these control measures are in form of policies. However, these regulations in most cases do not have advantages alone. There are disadvantages that are associated with them. In other words, there are pros and cons of economic regulation. With this in mind, this research paper will look at the pros and cons of government regulation of policies. In addition, the research paper will make proposals on what the EU and US competition policies need to focus on.
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Competition can be described as the aspects of seeking for a bigger or rather larger share of the market by any business ventures or individuals that are producing certain products in the market. With this in mind, competition has been found to create a niche for many businesses and organizations that are participating in a particular market. It is important to note that there are different policies that have been developed over time to control the market in regard to competition. These policies in most cases have been developed to promote competition rather than deter it. However, there are cases whereby the situations in the market warrants or rather give a go ahead to the government to introduce policies that are meant to control competition within its market. In most cases, this entails situations whereby its industries are threatened by external or foreign industries. As states earlier on, there are pros and cons that are associated with the development of competition constraint policies in any particular market.
On the other hand, there is a limit in regard to how effective these policies can be in any economy.
Research Findings and Discussion
Pros of Government Regulation of Competition
To begin with, it was found out that government policies to regulate competition within their economies played a very important role. With this in mind, Griffiths and Ison (2001) argues that government policies geared to increasing competition might help to keep prices at the perfectly competitive level, where price would be equated to marginal costs in the long run with firms making normal profits (108). This emanates from the fact that most businesses have been found to take advantage of lack of competition as a way of becoming a monopoly in their respective markets. In essence, this has created an opportunity whereby these businesses would hike prices in the market due to lack of competitors or policies that control their competitions. Therefore, competition policies are important in any economy since they are meant to protect the consumer from unscrupulous businesses activities such as cartels formed hike prices in any economy (Müller-Jentsch 75).
It was also found out that competition policies ensured that businesses and organizations that were dealing with certain goods in the market have developed a strategy that would ensure there is a high output level as compared to regulated or imperfect markets (Griffiths and Ison 108). It is worth to note that, in cases where the market are regulated or rather lack competition policies, businesses would opt to hoard their goods or produce them in low quantities to create an imbalance in such a way that there is deficit of these goods in a particular economy.
With this in mind, these businesses can be able to raise their prices since their goods have a higher demand in the market yet their supply is very low. This is done so that these businesses can be able to gain excessive or rather abnormal profits in their market of operation (108). On the international markets, this has been seen in oil producing countries that have more than often collaborated and produced their oil in low quantities to increase the price of oil products on the international market. The same case can apply to a local market of any economy when there are no competition policies.
Finally, competition regulation or rather policies were found to lower entry and exit levels, thus helping in preventing incumbent firms from dominating the industry or a particular market (Griffiths and Ison 108). Notably, most firms or rather businesses would always seek for way of creating a situation that would prevent other firms from entering a particular market. This is not healthy in any way as it hinders the ability of the market to explore the benefits of new forms of technology and innovation that are critical in producing quality products in the market. To alleviate the market from such incidences, government policies towards competition are important.
Cons of Government Regulation of Competition
Whereas government policies on competition are important, there are cases whereby they are not needed in any economy. In this regard, there are cons that are associated with government regulation of competition. First, the level of prices may be low in an imperfect market thus eliminate the need to impose competition regulation policies (Griffiths and Ison 109). In line with this, a monopoly may reap economies of scale by providing low priced goods rather than hiking prices. In this regard, the goods that are sold in such a market may even be cheaper as compared to the same goods in a perfectly competitive market.
It was also argued that abnormal profits were needed in some cases. In reference to Griffiths and Ison (2001), these profits could then be invested in areas that were too risks whereby banks and other financial institutions were unwilling to invest in or fund by giving loans (109). In such cases, these businesses would be in a position to venture in areas that are considered risky and yet their goods and services are needed in the market.
US and EU Competition Policy
Having seen the above argument, the US and the EU need to adopt particular competition policies. To begin with, the US should focus on adopting competition policies that would promote innovation and introduction of new products in their markets. These products need to be offered at competitive prices. In addition to this, the competition policies in the US should focus on preventing extortion of consumers by businesses or rather firms in the US market (Griffiths and Ison 110).
On the other hand, the EU policy should also enact competition policies that would prevent member states from promoting their industries beyond a particular point that would create unfair advantages in regard to competing with other firms from outside these states.
In reference to Telò (2009), the key challenge is to prevent excessively lenient state aid policy, which would give preferential treatment to 'European champions,' big incumbents that would, in the name of global competition, prevent market forces from allowing for a dynamic adjustment of industrial structures in Europe (100). More important, the EU need to adopt policies that would prevent conflicts between members countries to safeguard itself from disintegration.
In summation, competition policies are some of the most important aspects of any economy that is geared towards development. In line with this, it is important to develop competition policies that would promote the growth of the economy while at the same time safeguarding the consumer from extortion. In addition, whereas the protection of the consumer is necessary, the competition policies that are developed should also promote business activities in such an economy.