Types of Regulation, Privatization, & Deregulation

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  • 0:31 Types of Regulation
  • 1:25 Privatization
  • 2:25 Deregulation
  • 3:13 Cross Subsidization
  • 3:53 Cost-of-Service
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Lesson Transcript
Instructor: Jennifer Lombardo
Government can monitor, control and manage business through different types of regulation. In this lesson, you will learn about the two specific categories of regulation and how privatization and deregulation impacts business.


Have you ever wondered why the postal service is managed by the U.S. government? Or why the airplane industry is a private enterprise? The government has tremendous power and influence over business. The central way the government monitors business is through regulation, or controlling and managing an industry through laws. In this lesson, you will learn about the types of regulation, privatization and deregulation through various real-life examples.

Types of Regulation

The U.S. government is responsible for different types of regulation. The two major types of regulation are economic and social regulation. Economic regulation sets prices or conditions for firms to enter a specific industry. Examples of regulatory agencies that provide these types of conditions are the Federal Communication Commission, or FCC. Social regulation deals with the protection of individuals through an agency, such as the Environmental Protection Agency (EPA) or Consumer Product Safety Commission (CPSC).

In the last few decades, there has been a decrease in economic regulation and an increase in social regulation. Regulation is determined upon risk or who should be responsible for it. For example, the CPSC is responsible for toy safety for children.


Privatization is when government lets businesses take ownership of a public function. This can occur through a government contract where a private company will take ownership of a product or service.

A big concern about privatizing a function is that it removes the ability of the public to provide feedback or concern. Some examples of functions that were privatized are health care, the Internet and water.

The reasons for privatization are usually that the government is not able to provide the services competitively, and they are less efficient than the private sector. Anti-privatization proponents feel that certain areas, such as the postal services and airlines, are not able to be run properly by the private sector due to cost issues.


Deregulation is when there is a decrease of regulation in an industry. A prime example of deregulation is the Airline Deregulation Act of 1978. The Act allowed many new airlines to enter the market with plentiful routes. Initially, prices decreased and options increased with competition flourishing. There is not final determination if deregulation of airlines was the best solution. Currently, airlines are merging due to increasing fuel costs. Consumers are finding crowded planes and delays. Deregulation does cause the elimination of cross subsidization and cost of service regulation. Let's take a real-world look at both of these terms.

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