Introduction

The welfare goal that competitive markets serve can be set out also as an objective for regulation to achieve when competition cannot function well. We have focused attention on expressing such ideal outcomes, taking economic efficiency as our dominant goal. Chapter 2 presented ways to represent economic welfare and Part II was devoted to the study of prices that would make such welfare as large as possible. But Chapter 3 brought out difficulties inducing the pursuit of welfare through regulation, and Part III showed that real-world regulatory institutions are not really designed to pursue that aim. Indeed, the contrast between Parts II and III reveals how far institutions are from idealized conceptions.

We now want to consider what might be done to improve regulatory performance, especially where monopoly power exists because entry is prevented. In Section 11.2 we briefly review ways to persuade present organizations to pursue welfare aims. Since these organizations and their regulation were influenced by contending parties understandably promoting their own interests, it is not surprising that they are not ideal. Without the forces of competition, it can be difficult to induce welfare aims in a firm or industry. But that is not the only problem. Regulatory institutions have grown out of conflict among different consumers and between consumers and enterprise owners or managers. Political and judicial institutions have played an important role in their formation, and outcomes have represented compromises between opposing positions.