Regulation refers to the government intervention in the market behavior. There is a relationship between market structures and market regulation. Industrial and or economic regulation refers to the government control, intervention in the consumption, production and distribution of resources. The industrial regulation takes the form of taxation and provision of legislation to either promote or hinder some industrial practice. Regulation does not allow the price mechanism to determine the direction of the market. The price mechanism is inefficient in the allocation of resources to priority areas (Clarke, 2009).
Industrial regulation exists due to the need to protect the consumers. Without market or industrial regulation there will be sub-standardized goods in the market. The regulation exists to stop unfair industrial practices. Some of common industrial practices include poor working conditions and insecure machinery. The regulation of the industry ensures the industry players provide quality goods for the consumers. It also ensures there is mutual respect between the employers and employee. Lack of good working conditions will force workers to resort to industrial regulation. There is an emergence of trade unions. The industrial regulation ensures the smooth industrial activities. The workers will not interrupt industrial activities to their advantage. There is legislation that protects both the employer and employers. Industrial regulation promotes investor activities in the industry. The industry regulation can sometimes take the form of tax waives for the investors. Some companies are allowed to take tax holiday so as to absorb some costs.
Industrial regulation affects the market either positively or negatively. The industrial regulation sets standards for the market players. The standards must be met for the industry players. The market forces of demand and supply are not free to determine prices. The government determines the price mechanism. This is because consumer protection is core in the responsibility of the nation. The regulations hinder activities of the monopolies and other industry players. The market is not subject to free entry and exit for industry players. The government can sometimes set barriers to entry to the market. The barriers to entry will include huge capital requirement for the market players.
The industrial entities that will be affected by the regulation will include cartels, monopolies, and the duopolies. Industrial regulation will also hinder perfect competition in the market. The monopolies will also be affected. The cartels form a small group of sellers who intend to control the distribution of some essential commodity.
Industrial regulation will affect the above entities as their decisions in regard to price and quantity will be subject to government intervention. The common market structures are perfect competition, monopoly, monopolistic competition and duopoly. Oligopoly represents form of the cartels.
Social regulation will involve regulation in the provision of essential social goods in the interest of the public. The price mechanism is not efficient in the provision of public goods. Social regulation exists to promote the allocation of scarce resources to priority sectors. The social regulation will ensure Pareto efficiency in the provision of public goods.
The entities affected by social regulation are private sector and monopolies. Some of essential services like education, health will not be provided efficiently by the market players. The private will majorly aim to make supernormal profits in the provision of the social goods.
Natural monopolies will include market players on industry players who enjoy state protection and subsidies in the provision of strategic services and or goods. The goods provided cannot be left to private market players. The natural monopolies are established by the act of parliament to provide essential commodities. The justification for natural monopolies is that some commodities like security and electricity are crucial and strategic to the government operations. There ought to be strict regulation in relation to production, consumption and distribution of the commodities.