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Public Interest Theory of Regulation

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The oldest form of regulation is the public interest theory of regulation. This theory of regulation is often more implied within the statues than expressly articulated. Under the public interest theory, regulation is established to ensure and protect those objectives relating to the public interest are upheld. Two main assumptions underline this theory: government regulation is a much lower price than the general competition, and economic markets will more likely fail to operate effectively if left alone due to the fragile state. (Phillips 182). Through this theory that the laws of regulation, in the case of public utilities, is able to be substituted for the laws of competition when regarding what is in the public’ s interest.

Public interest is often defined by the needs or demands of the public at the time. While some of these basic demands, such as complete, uninterrupted service, are ongoing, other demands may change with fluctuating markets, economies, and societal standards. Market barriers that may hinder the public interest theory of regulation may include any of the following: market growth, changing technologies and technological barriers, costly information, externalities such as pollution and infrastructure, and ex-post exploitation.

For example, as the technology of cable increased and spread beyond television programming, cable telephones and cable Internet providers have come about. These new services supplied consumers with pre-existing services at a higher value than of the telephone services alone, causing a source of competition between two public utilities. With the development of satellite television, telephones, and the Internet, more competition has resulted. Yet, these companies are still protected under a regulation rather than competition laws because of the types of services they provide Growing fuel and resource prices as a result of war and hurricanes have also resulted in price increases.

As the rates of gone up, gas companies have reported their highest profits in years over several television news stations; clearly, the public interest theory of regulation is not fully being expressed.

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