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Regulation aimed at preventing monopolies or altering their behavior is called antitrust. But natural monopolies are actually extremely rare, while many competitive industries are regulated.

The Issue

Distinguished economists have pointed out that neither the number of firms in a particular market nor their pricing behavior is reliable evidence of market power, so regulators have no way to identify monopolies even if they wanted to regulate them. In fact, regulation is probably the leading cause of monopolies by erecting barriers to entry.

Our Stance

Economist James L. Johnston observe that industries are most often regulated when three conditions are present: the product or service is subject to substantial shifts in supply and demand, supply reliability cannot be achieved through precautionary stocks or other market techniques, and substantial social costs are incurred when supplies are interrupted. The intended effect of regulation in such cases is to improve the stability of supply by encouraging extra investment in reliability.

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