REGULATORY RATIONALE

Fixing market failures is the primary reason for regulation. There are four major ones. A firm that is too powerful (monopolist) is likely to abuse their position. Negative externalities such as pollution are a second failure. A third is informational asymmetries; here a seller can dupe a buyer or vice versa. A fourth is tragedy of the commons such as overfishing. The key is not to over/underregulate, and that’s tough.