Deregulation as an Instrument in Industrial Policy

Under what circumstances would incumbent firms favor deregulation, given the benefits they receive from regulatory controls on price, output, and entry? An answer to this question is critical for understanding the phenomena of deregulation and for determining whether it is likely to be permanent or transitory. Despite deregulation of important markets in the United States, including banking, transportation and telecommunications, economists have little theoretical or empirical insight into why deregulation is occurring and the processes underlying it. Indeed, most regulatory models so clearly specify the gains to firms from certain types of government regulation that observed industry support for deregulation is a puzzle (Stigler [1971] and Peltzman [1976]). Additionally, while consumers benefit from associated lower prices and increases in the number and variety of products, they generally are considered to be too broad and heterogeneous to form cohesive lobby groups for deregulation (Olson [1965]). What, then, is the motivation for these policy