Regulation and Antitrust: The Role

of Government in the Economy

Economic theory of regulation
 Regulation is the result of pressure-group action and results in laws and
policies to support business and protect consumers, workers, and the
environment.

Government regulations that restrict Competition:

1. Licensing
• Justified to ensure a minimum degree of competence and protect the public
against fraud and harm in cases in which it is difficult for the public to
gather independent information about the quality of the product or service.
2. Patent
• The right granted by the government to an inventor for the exclusive use of
the invention for a certain period.
• The patent holder can use the patent directly or grant a license to use the
invention in exchange of royalty payments.
Government Regulations to Protect Consumers, Workers and Environment
1.Consumers
• RA 7394, Consumer Act of the Philippines

2. Workers/Employees
• Labor Code of the Philippines

3. Environment
• RA 8749 (Clean Air Act of 1999)
• RA 9275 (Philippine Clean Water Act)
• PD 1586 (Environmental Impact Statement System)
• RA 6969 (Toxic Substances and Hazardous Waste Control Act)
• RA 9003 (Ecological Solid Waste Management Act)
• RA 9512 (Environmental Education Act of 2008)
Externalities and Regulation
• According to the public theory of regulation, government regulation is
undertaken to overcome market failures, so as to ensure that the economic
system operates in a manner consistent with public interest.
• Market failures arise because of externalities and from the power that exists
in imperfectly competitive markets.

Externalities
• Harmful or beneficial effects borne or received by firms or individuals other
than those producing or consuming product or service.
External diseconomies of production
• Uncompensated costs imposed on some firms by the expansion of output by
other firms.
Ex. increased discharge of waste materials by some firms along a waterway
may result in antipollution legislation that increases the cost of disposing waste
materials for all firms in the area.
External economies of production
• Uncompensated benefits conferred on some firms by the expansion of
output of other firms.
Ex. when some firms train workers and some of these workers go to work for
other firms.
External diseconomies of consumption
• Uncompensated costs imposed on some individuals by the consumption
expenditures of other individuals.
Ex. smoking in a public place has a harmful effect on non-smokers in the place
External economies of consumption
• Uncompensated benefits conferred on some individuals by the increased
consumption of a product by other individuals.
Ex. increased expenditures to maintain a lawn by a homeowner increases the
value of the neighbor’s home also.