<< Chapter < Page Chapter >> Page >

By the end of this section, you will be able to:

  • Evaluate the effectiveness of price regulation and antitrust policy
  • Explain regulatory capture and its significance

Governments at all levels across the United States have regulated prices in a wide range of industries. In some cases, like water and electricity that have natural monopoly characteristics, there is some room in economic theory for such regulation. But once politicians are given a basis to intervene in markets and to choose prices and quantities, it is hard to know where to stop.

Doubts about regulation of prices and quantities

Beginning in the 1970s, it became clear to policymakers of all political leanings that the existing price regulation was not working well. The United States carried out a great policy experiment—the deregulation    discussed in Monopoly —removing government controls over prices and quantities produced in airlines, railroads, trucking, intercity bus travel, natural gas, and bank interest rates. The Clear it Up discusses the outcome of deregulation in one industry in particular—airlines.

What are the results of airline deregulation?

Why did the pendulum swing in favor of deregulation? Consider the airline industry. In the early days of air travel, no airline could make a profit just by flying passengers. Airlines needed something else to carry and the Postal Service provided that something with airmail. And so the first U.S. government regulation of the airline industry happened through the Postal Service, when in 1926 the Postmaster General began giving airlines permission to fly certain routes based on the needs of mail delivery—and the airlines took some passengers along for the ride. In 1934, the Postmaster General was charged by the antitrust authorities with colluding with the major airlines of that day to monopolize the nation’s airways. In 1938, the Civil Aeronautics Board (CAB) was created to regulate airfares and routes instead. For 40 years, from 1938 to 1978, the CAB approved all fares, controlled all entry and exit, and specified which airlines could fly which routes. There was zero entry of new airlines on the main routes across the country for 40 years, because the CAB did not think it was necessary.

In 1978, the Airline Deregulation Act took the government out of the business of determining airfares and schedules. The new law shook up the industry. Famous old airlines like Pan American, Eastern, and Braniff went bankrupt and disappeared. Some new airlines like People Express were created—and then vanished.

The greater competition from deregulation reduced airfares by about one-third over the next two decades, saving consumers billions of dollars a year. The average flight used to take off with just half its seats full; now it is two-thirds full, which is far more efficient. Airlines have also developed hub-and-spoke systems, where planes all fly into a central hub city at a certain time and then depart. As a result, one can fly between any of the spoke cities with just one connection—and there is greater service to more cities than before deregulation. With lower fares and more service, the number of air passengers doubled from the late 1970s to the start of the 2000s—an increase that, in turn, doubled the number of jobs in the airline industry. Meanwhile, with the watchful oversight of government safety inspectors, commercial air travel has continued to get safer over time.

The U.S. airline industry is far from perfect. For example, a string of mergers in recent years has raised concerns over how competition might be compromised.

Questions & Answers

what is marginal rate of transformation
Peter Reply
difference between individual demand and market demand with illustrations.
kwagala Reply
what is market demand
kwagala
Is the total amount of goods and services that all consumers are willing and able to purchase...
Istar
market demad business
zahid
What is the different between demand and supply?
Mohamud Reply
Demand is a natural phenomenon by a person who wants a certain commodity , u can say The ablity to buy a certain commodity at a certain price is called demand
Wardan
supply is point of view from Supplier of certain commodity
Wardan
Thnks wardan sheikh
Mohamud
u can get help from Law of Demand which is When a price of certain commodity increases it's quantity demanded decreases and when the price of certain commodity decreases it's quantity demanded increases and vice versa
Wardan
and to understand supply u can understand by the help of law of supply which is when a price of certain commodity increases it's quantity supplies also increases and when price of certain commodity decreases it's quantity supplies also decreases and vice versa
Wardan
Hope u got the answer
Wardan
hi
Christian
hello
Victory
what is point?
Asmatullah
pls it's quantity supplied not quantity supplies. tanx
PETER
Peter it's just typing error if u know better u should take initiatives and start helping people or u can just shut up
Wardan
What is the labour market?
Ruchi
Ruchi Shukla it's a big topic which contains several parts , u can understand a market where there are number of employees (skilled and semiskilled )
Wardan
describe the economic systems
kivumbi
ryt nice
Destiny
what is the cause of a country's population
Destiny
Destiny Abekah the cause Is fun ahahahaha
Wardan
Hi
Crahmaan
What is going here?
Crahmaan
Hi
Jacob
what is naxion shoks any 1 can explain please
Iftikhar
hello
Hydrammeh
impact of transport and communication for economic help me
Jacob
What is the formula for calculating elasticity
Destiny Reply
Change in Quantity/Change in price
Abdul
ok
Destiny
E=%∆ in Q/ %∆ in P
ashafa
what mean elasticity
Jimcaale
change in quantity divided by change in price
mukhtaar
ok
Abdul
price elasticity = Q2-Q1/Q2+Q1/2/ P2-P1/P2+P1/2
Wardan
second formula is change in q / change in p × Q(original)/ p (original)
Wardan
Elasticity is just a measurement of change influenced by change in price , income
Wardan
change quantity /change in price
Ayaan
ok
Muhammad
change in price change in quality
Muhammad
yes
Thomas
public economy vs public choice
martha Reply
cool n you
Godwin
nice
Saratu
thank God
Destiny
so wat is going on
Destiny
please understand change in demand.
Saratu
learning is going on please.
Saratu
demand changes when the price of the commodies in the market increaaes
Destiny
amd vise veser
Destiny
thank you.
Saratu
same to u
Destiny
I need help with PED and PES
XORO Reply
Price elasticity demand
Saratu
price elasticity supply
Saratu
What are the uses of stastitics in economic and business?
Mohamud Reply
Statistics helps in analysing various economic problems such as inflation, unemployment etc by looking at numbers, trends over the years.
Samuel
it also helps in summarising mass data like income, consumption etc into measures like per capita income and per capita consumptions which are more explanatory of how an economy is performing.
Samuel
Statistics is a data interpretation tool used for collecting, classifying and analyzing data. It is an indispensable tool for an economist to understand various business and economic problems and formulate policies to tackle with them.
Samuel
good answer
Destiny
how is the firm know elasticity
Shekwonudiza Reply
What is margin?
Crahmaan
wanna know about GDP ?
Wardan Reply
yes
Leela
i would like to know about GST rather
JNUI
i've gone through many articles related to GST. but my question is, earlier, when the amount of tax was so higher, who was the winner?
JNUI
and if the amount of tax is less, then somebody must be losing some money. so who is the loss maker
JNUI
also, what I don't understand properly is the 'input tax credit'. 🤔 and the e-way bill
JNUI
Gst is an essential Tax to boost up National income
Wardan
Gst isn't ever goes too high but in cases where there is a larger expectations on Sales revenue the gst increase and vice versa
Wardan
and yes it's the only time to make revenue for Central Government under some period and certain conditions u will learn
Wardan
yeah third one the Gst is low
Wardan
the central Government is responsible for such error to not be so prudent under those policies which are applied
Wardan
deductive and inductive
Mianosama
deductive and inductive are the parts of micro economics
Wardan
What are the key elements to consider when defining economics
Samuel
scarcity, means and end
Balogun
Samuel it is defined as study of house hold Management and money matters .
Wardan
scarcity is defined as the point where demand is greater than supply
Wardan
Use scarcity,means and end in your definition
Samuel
I really love this group
Samuel
Am new to economics and you guys are making it so interesting to study
Samuel
yup seems very interesting
Criminologist
Hahaha thanks buddy
Wardan
consider a market (where there are buyers and sellers ) situation , Let's make it funny to make u understand more easy that due to some political issues It is announced by the government that every store will be closed tomorrow , the citizens who are intelligent enough to predict consequences for it
Wardan
They will start buying more and more and due to those political issue some stores were closed and few were opened so at this point the demand for product or commodity (which people are willing to buy from stores) is greater than supply
Wardan
What is GDP
XORO
basic competitive model and the role of mechanism
SRIPRIYA Reply
explain the Adam Smith law of economics
Daya Reply
critical use of tariffs and non tariffs on imports and exports.
Natukunda Reply
Is harmful
amin
is good I guess
Audrey
it's very good
Godwin
why is the marginal curve u shaped
jake Reply
which of marginal curve?
begyere
marginal cost curve
jake
critical use of tariffs and non tariffs on exports and imports
Natukunda
what is the features of monopoly market? how it is different from monopolistic market?
alisha Reply
Monpoly market is a merket where the are many buyers, but only one seller. Because of the product is unique, and price discremination will be there.
Crahmaan
so how is it different from monopolistic market as she is saying
Samuel
or it is the same thing
Samuel
it marvellous
Amadu
thanks
Samuel
what is demand function
uju Reply
demand function is the mathematical representation of price and quantity demanded of goods and services at various prices at a given time .
King
Demand function is an equation which shows the mathematical relationship between the quantity demanded of a good and the values of the various determinants of demand.
Bon
what's scarcity
Brandon Reply
scarcity is the stage at which your end becomes greater than your want.
Caasianebok

Get the best Principles of economics course in your pocket!





Source:  OpenStax, Principles of economics. OpenStax CNX. Sep 19, 2014 Download for free at http://legacy.cnx.org/content/col11613/1.11
Google Play and the Google Play logo are trademarks of Google Inc.

Notification Switch

Would you like to follow the 'Principles of economics' conversation and receive update notifications?

Ask