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GOVERNMENT DEREGULATION.
Term Paper ID:29841
Essay Subject:
Creation of regulatory frameworks.... More...
9 Pages / 2025 Words
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Paper Abstract:
Creation of regulatory frameworks. Direct impact on interstate and intrastate commerce; public utility corporations; the telephone and tele-communications sector including the cable television industry; the airlines and other transportation sectors; banking and finance. Goal of deregulation to create competition. Examples of negative effects of a deregulated marketplace.
Paper Introduction:
Managerial Economics:
Government Deregulation and its Effects
The Constitution of the United States, in the “commerce Clause,” accords to Congress the “power…to regulate commerce with foreign nations, and among the several States" (Miners, Ringleb & Edwards, 1994, p. 122). In 1824, Chief Justice John Marshall established some of the basic guidelines of the Commerce Clause in Gibbons v. Ogden, holding that commerce among the states means “interstate commerce,” or “commerce which concerns more States than one" (Miners, et al, 1994, p. 123). From this ruling, the Congress and the national government has moved over time to create a number of regulatory frameworks that have a direct impact on both interstate and intrastate commerce; public utility corporations, the telephone and the tele-communications sector,
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In thecase of electricity consumers, for example, Electrical World (Customerloyalty low..., 19998) reported that most electric customers in the UnitedStates are dissatisfied with the quality of service rendered by theirutilities. The Legal Environment of Business. Companies that once had a"captive audience" are now finding that they must not only reduce theirprices; they must also be more aggressive and assertive in reaching out tocustomers, whose willingness to remain with a provider is in decline. Customer satisfaction with pricesand service is very low, and consumer choice was relatively non-existentuntil competition from satellite vendors emerged (Cable TV, 2 2). A. St. In the cable television industry, there were few regulations in placebefore the current round of deregulation set in. Markets will become clear withcompetitive prices, which function so as to ration supplies efficiently inthe short run and to elicit adequate technology and infrastructure in thelong run. By removing the heavy hand ofgovernment control, from key industries such as telecommunications, publicutilities and transportation, deregulation has dramatically increased theflexibility and the responsiveness of American corporations in a time ofrapid technological and competitive change. However, the question of whether or not deregulation will workin the long term is not as yet answered. Surveys have revealed that although competition among utilitiesincreased from 1997 on, customer satisfaction has dropped considerably.Lower prices are apparently not always forthcoming as a consequence ofcompetition in this sector. This has serious implications for long-term profitability. (1999). P. Since deregulation,consumers have fared poorly with respect to this particular service. Environmental Law, 32 (2), 435 - 475. It is possible thatpositioning public utilities such as natural gas and electricity as a"commodity" that should not be closely regulated may create an opportunityfor firms to take advantage of their clients, generating unacceptably highprices and declines in customer satisfaction and overall service quality. Managerial Economics: Government Deregulation and its Effects The Constitution of the United States, in the "commerce Clause,"accords to Congress the "power...to regulate commerce with foreign nations,and among the several States" (Miners, Ringleb & Edwards, 1994, p. Quality issues are seen by consumers as equalin significance to price issues. Muchcompetition in the new deregulated environment is centered on prices - notonly quality of service. Customer satisfaction has correspondingly declined asthe cost savings anticipated in both sectors have not been realized and, insome instances, quality of services have also begun to decline. Snyder (1997) argued some five years ago that deregulation is drivinganother aspect of doing business; in the wake of deregulation, advertisingand marketing to reach new customers and to ensure that existing customerswill be retained has taken on new impetus. Solomon (199 ) noted that the transportation industry's airline sectorwas, in the 197 s, among the first major targets for federal deregulation;when regulations impacting upon prices, routes, and other aspects ofcompetition were either removed or reduced in this sector, competitionincreased. Snyder (1997), however, also noted thatconsumer demand for higher quality services is fostering new rounds ofcompetition in this sector. Reconciling the potentially conflicting demands of remainingcompetitive and appealing to customers who want quality and low costproducts or services is therefore quite difficult. Why electricity markets go haywire. More significantly, prices for services dropped, with consumersbenefiting from lower air fares and thus creating a situation in which themarket expanded and new consumer spending was facilitated. Birnbaum,del Agujia, Orive and Lekander (2 2) noted, that as the public utilityproviders of electricity were deregulated in the United States and aroundthe world, customers assumed that they would benefit in terms of lowerservice costs and greater choice in selecting an electricity provider. St. D., & Lekander, P. Snyder, B. Consequently, as transmission networks continueto be privately owned and controlled, problems of transmission pricediscrimination, fairness, and reasonableness must be addressed ifrestructuring in a deregulated environment is to succeed (Thomas, 2 2).Ideally, says Thomas (2 2), by 2 6 - 2 11, electricity will be availablefor purchase and sale in both wholesale and eligible retail markets by anywilling creditworthy participant. However, as Business Week (Deregulation is great, but..., 1999)noted, in the airline and telecommunications industries predatory pricinghas been observed. In1824, Chief Justice John Marshall established some of the basic guidelinesof the Commerce Clause in Gibbons v. Business Law Today. Telephony, 232 (43), 38 - 39.Solomon, L. Thus, among thegoals implicit in deregulation are: 1) spurred competition and loosening ofbarriers to market entry; 2) offering more purchase options to consumers;and 3) fostering consumer willingness to spend on services and goods(Solomon, 199 ). (2 2). (1997). This must be recognized asone of the effects of deregulation, which has not always worked to thebenefit of the customer. In the 198 s and continuing to the present time, Miller and Jentz(2 ) have noted that a number of industrial sectors, notably the utility,transportation and telecommunications sectors, have been subject to wavesof deregulation in which government scrutiny and oversight have beenreduced. Paul, Mn.: West. Companies that capture and retain marketshare do so at a high cost - a cost reflected in the need to investregularly in new technologies, research and development, and new products.For shareholders of the hundred-year old Bell telephone companies, aformerly rock-solid investment has become an investment with limited growthpotential and, in some cases, a decline in profitability. The firms that are "winning" in thissector are those that combine low cost with service options and flexibilityas well as quality. The goal of deregulation is, for the most part, to encouragecompetition and to encourage entry of new organizations into the sectorbeing deregulated (Solomon, 199 ). As new competitors anxious to capture market share emerge, customersare likely to become more and more demanding. Huber(2 3) suggests that the monopoly-eliminating goal of deregulation has notbeen as nearly achieved as some policy advocates would argue. Deregulation has not always succeeded in achieving its goals; in fact,deregulation can have the unintended but perhaps inevitable effect ofreducing service or product quality and customer satisfaction. Underscoring this attitude shift is the fact that customers areincreasingly likely to switch from one service provider to another. Is that the so-called "New Economy" is being drivenby the belief (and the underpinning and supportive policy) that aderegulated marketplace is likely to be a more competitive, cost-effectivemarketplace capable of meeting the needs of the public and individualsconsumers. Over time,however, customer satisfaction in cases such as that of California - whereelectricity prices increased dramatically and service quality declinedafter deregulation - has proven to be unstable. ReferencesBirnbaum, L., del Agujia, J. L. In discussing electricity regulation, Thomas (2 2) noted that theCalifornia energy crisis of the Summer of 2 , the world crisis afterSeptember 11, 2 1, and the implosion of Enron Corporation all serve toillustrate the flaw inherent in regarding utilities as providing acommodity. If you build it, they will come. It isalso important to recognize that some sectors, such as public utilities,may have been "deregulated," but there are still virtual monopolies inselected geographic regions where a single service provider exists. As firms in the deregulated industrial sectors face a new millennium,the challenge will be to remain competitive by capitalizing upon andexploiting core competencies, by participating in growth strategies, and byconsidering new technologies and new ways of organizing business units.Globalization has the potential to open new markets and create newsynergies between disparate organizations. Many are equally dissatisfied with the price rates offered byproviders. (1998). 122). (199 ). New transparent and liquid markets, the idealized end result ofderegulation, will then be possible. E., Ringleb, A. M., Orive, G. On the one hand, competition spursinnovation and drives a firm to realize economies of scale, generatequality improvements, and improve customer relationship management. What this suggests, according to Business Week (Deregulation isgreat, but..., 1999). Commentary, 115 (1), 34 - 41.Meiners, R. The"message" provided by this example is the deregulation of a poorlyregulated and loosely structured (as well as highly competitive) industrydoes not always benefit the consumer; what has benefited the cable TVconsumer is not new cable competition, but the emergence of alternativeproviders. The past and future of electricity Regulation. W. (1994). H., & Edwards, F. The central problem with deregulation and the resulting restructuringof this sector is that transmission networks continue to have naturalmonopoly characteristics. 123). Nevertheless, as Huber(2 3) pointed out, it is precisely this task that managers in the NewEconomy must address if they are to meet their responsibilities. (2 2). However, Thomas (2 2) cautions thatsome electricity providers will still require regulation because they are,in essence, monopolies. Intelecommunications, for example, companies must be focused on more thansimple connectivity; service and line quality, cost issues, add-ons, and soforth must be added to a marketing mix in order to achieve competitiveadvantages. Electrical World, 212 (6), 9 - 1 .Deregulation is great, but.... L., & Jentz, G. For a company entering the new millennium and participating in the NewEconomy, these are important issues. Telecom undone - a cautionary tale. The McKinsey Quarterly, Winter, 64 - 65.Cable TV. (2 2). Business Week, 3623, 13 +.Huber, P. Priceshave not declined; in some cases, prices for premium services have actuallytended to increase faster than inflation. Ogden, holding that commerce among thestates means "interstate commerce," or "commerce which concerns more Statesthan one" (Miners, et al, 1994, p. While customers may want and enjoy the immediatebenefits of lower service or product costs, when product and servicequality declines, cost savings become less significant and appealing. Deregulation has helpedenormously to facilitate these trends, but the success of any company willinvariably depend upon the degree to which it can meet (and even exceed)customer expe4ctations regarding quality, service and price. Consequently,these firms are now struggling to acquire the capital needed for newresearch, development and expansion opportunities (Huber, 2 3). Deregulation does mean enhanced competition, thusspurring change and innovation. As a policy measure, the move to reduce command-and controlregulation of the electricity industry and to promote competition hasenjoyed popular support. On theother hand, new competitors can dilute customer loyalty and create asituation in which a marketplace with finite capacity for growth becomesoverloaded. Paul, Mn.: West.Miller, R. (2 ). Itwas assumed that in place of government agencies compelling them to pay forcapacity that far exceeded any imaginable need, markets would more closelyand cost-effectively match supply to demand.At first, deregulated electricity markets were seen as following thisscript: wholesale prices went down by 2 to 5 percent, services improved,and the generators' profits fell (Birnbaum, et al, 2 2). Indeed, in the wireless telephone sector, the proliferation ofservice providers has resulted in just such a situation; customers maybenefit from having a plethora of service plans and options available tothem and may switch from provider to provider in search of the "best deal"with the highest level of service quality (Huber, 2 3). Economics. From this ruling, the Congress andthe national government has moved over time to create a number ofregulatory frameworks that have a direct impact on both interstate andintrastate commerce; public utility corporations, the telephone and thetele-communications sector, the airlines and other transportation sectors,and banking/finance have all be subject to varying degrees of federal (andstate) oversight and regulation; in some instances, the government hasshifted from a close regulatory climate to one of deregulation (Miller &Jentz, 2 ). Reading, Ma.: Addison- Wesley.Tomain, J. Consumer Reports, 67 (7), 33.Customer loyalty low among electricity consumers. In discussing precisely this issue, Huber (2 3) noted that thederegulation of telecommunications in the United States has resulted in thearrival of so many competitors that it is a buyer's market and not a marketthat is favorable to sellers. New competition and rivals representboth an opportunity and a threat. In the vital telecommunications sector, which offers consumers a widerange and variety of communication services, deregulation has beensuccessful in maximizing competition and helping consumers achieve lowerprices for desirable services. (2 3). However, Thomas (2 2) believes that this is anindustry that can not and should not be totally deregulated.
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