slides course 7a

8/9/2019 Slides Course 7A

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Regulation in services

Course 7A


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Economic distancethe sum of the costs arising from:

geographic distancetransporttransaction costs of various kinds - differences in culture, language, etc.

regulatory barriers to the exchange of products and factors of productionacross frontiers

Economic distance bet een agents in different countries i ncreases because of:

lo degree of tradability of many servicesgovernment policies restricting access to service market by foreign providers

Reductions in economic distance may occur because of:technological improvements - reduce the cost and enhance the !uality oftransport, communications and"or information.changes in regulatory regimes - policies, la s and regulations thatdiscriminate against foreign products and producers, or that apply e!ually todomestic and foreign producers.


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The case for regulation:

The economic case for regulation inservices - market failure attributable to threekinds of problems:

natural monopoly or oligopoly,asymmetric information,externalities.

The social case for regulation is based

primarily on considerations of e!uityuniversal service


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Market failures:natural monopoly or oligopoly - feature oflocational services :

speciali#ed distribution net orksspeciali#ed e!uipment for transmitting or receivingthe service

difficulty of duplicating net orks and terminals,given space constraints.high barriers to entry associated ith large initial

investments.- services that can be provided competitively must

rely on services provided monopolistically -access to the essential facilities that continue to

be monopolistically controlled.


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Market failures:asymmetric information - occurs in a ide rangeof intermediation and kno ledge based servicesbuyers - inade!uately informed about the trueattributes of sellersconsumers - cannot easily assess the competenceof professionalsremedy - ade!uate dissemination of information -too expensive to communicate the necessary

information to individual buyers $% easier to regulatesuppliers than to educate consumersregulation of inputs - often amounts to restrictionson entry into the market.


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Market failures:externalities - market prices do not fully capture thecosts and benefits of the associated transactionsnegative externalities:

environmental - providers of transport services or tourismservices

financial services&revention - prudential regulation 'authori#ation and licensing

procedures(

positive externalities:telecommunications - benefits of consumers are higher iththe increase in the number of consumers.

government intervention - interconnection, net orkcompatibility and effective market entry.


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Social case for regulation:Universal service:

Legea nr. 304 din 4 iulie 2003 pentru serviciul universal idrepturile utilizatorilor cu privire la reelele i serviciile decomunicaii electronice stipuleaz urmtoarele:

Art. 3 ( ! "reptul de acces la serviciul universal reprezintdreptul tuturor utilizatorilor #inali de pe teritoriul $om%niei de a

&ene#icia de serviciile din s#era serviciului universal' la un anumitnivel de calitate' indi#erent de localizarea geogra#ic i la tari#eaccesi&ile.

(2! erviciile incluse )n s#era serviciului universal sunt:a! #urnizarea accesului la reeaua pu&lic de tele#onie' la un

punct #i*+&! serviciul de in#ormaii privind a&onaii i punerea la

dispoziie a registrelor a&onailor+c! accesul la tele#oanele pu&lice cu plat .


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Theories of regulation:

case for regulation - reducing the ill effects ofunrestricted competition in the provision ofservices hen buyers are misinformed.)here are t o ma*or theories of regulation:

public interest theory + tigler + regulations servethe public interest

captured interest + &elt#man + regulations areapplied in the interest of private groups that arecapturing the regulatory process


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Public interest theory ofregulation:)he public interest case for service sector regulation

- to solve market failure problemsservice providers - likely to prefer the higher incomesthat result from the control of entry into their

occupation, or from restrictions on competitionbet een those ho are admitted to it.egulatory po ers:

to achieve anti-competitive goals of the providers of aserviceto protect buyers of the service from la#y or predatoryproviders

egulators - inherent sympathy ith the vie s ofthose they are ostensibly regulating


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Public interest theory ofregulation:

ervice providers , advantages:li-el to &e &etter a&le to asses the e##ects o#regulator actions/ill usuall &e #e/er in num&er than users/ill have a greater interest in the conditions o#their occupation

easier #or them to organize themselves and pres#or the adoption o# their vie/s


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Captured interest theory ofregulation:

!uestions the ready availability ofkno ledgeable persons ho ill act in thepublic interest.members of a regulated industry + divert thepo ers of regulators to their o n purposes.ervices can also be regulated in the interest ofprivate interest groups that exercise pressure

over regulatory bodies, having as outcome:forced introduction of regulation here it is not thecase

adoption of less efficient regulatory instruments


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Theories of regulation

hile it cannot successfully be argued thateconomic efficiency al ays re!uires a

complete absence of regulation, heneverregulation is *udged necessary, a ma*or

concern must be to ensure that regulatorypo ers are not captured by the existing

providers of a service and used to furthertheir interests


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Regulatory tiers:

/. &rimary legislationacts of parliaments

0. 1elegated legislationstatutory rulesdisallo able instrumentsnon-disallo able instruments

2. 3uasi-regulationcodes of practice here there is a government roletandardsguidelines

4. Administration of regulations


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Forms of government action:5light-handed6 regulation - codes of practice - fairly lo economiccosts, as they do not change the fundamentals of ho anindustry operates5heavy-handed6 regulation - restricting entry to markets -substantially alter the structure and operation of an industry, andis likely to incur relatively large economic costs.

regulation should be the minimum necessary to achieve thestated ob*ectives:

matters here the potential damage is minimal might best be leftto the market or industry itself to correctmatters ith moderate probability and"or moderate impact may

best be handled by a relatively 5light-handed6 regulatoryapproach andmatters ith high probability and"or high impacts may arranthighly interventionist regulation.


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