Economic Deregulation: Definition, Benefits & Example

Economic Deregulation: Definition, Benefits & Example
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  • 0:01 Deregulation
  • 0:20 Recent Example
  • 0:59 Benefits of Deregulation
  • 1:50 Drawbacks of Deregulation
  • 2:19 Energy Deregulation
  • 3:11 Lesson Summary
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Lesson Transcript
Instructor: Jennifer Francis

Jennifer has a Masters Degree in Business Administration and pursuing a Doctoral degree. She has 14 years of experience as a classroom teacher, and several years in both retail and manufacturing.

This lesson presents economic deregulation and its impact on industries. The lesson will also present key definitions, the advantages and disadvantages of deregulation, and examples for clarification.

Deregulation

Economic deregulation occurs when the government removes or reduces the restrictions in a particular industry to improve business operations and increase competition. The government removes certain regulations when businesses complain about how the regulation impedes their ability to compete. This is usually the case when there is global competition in a particular industry.

Recent Example

During the 1970s in the United States, there were many banking regulations and restrictions on interest rates, from the lending end as well as from the deposit end. Banks were also limited geographically; they were not allowed to have branches in more than one state. Today these regulations are no longer in place; there are no longer ceilings on interest rates and deposits, and banks can operate not just across state lines, but globally.

Because of this deregulation, the banking industry is now more competitive, benefiting both the consumer and the organizations. Some other industries in which deregulation often occur are utilities, telephone, the airline industries, and transportation in general.

Benefits of Deregulation

Deregulation has many advantages, which vary by industry. Some of the main advantages are:

  • It generally lowers barriers to entry into industries, which assists with improving innovation, entrepreneurship, competition, and efficiency; this leads to lower prices for customers and improved quality.
  • Producers have less control over competitors and this can encourage market entry.
  • It benefits the economy because taxpayers no longer have to pay for the expenses of operating regulatory agencies. This means that consumers have more discretionary income, and therefore more money to spend on other items.
  • It helps to increase choices and lower prices for consumers.
  • Businesses can formulate their own strategies and processes, without government interference.
  • It allows market forces to control the industry; the customer is king in a market economy.

Drawbacks of Deregulation

Deregulation also has its disadvantages. These include:

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