Liberalization of the market made it necessary to reevaluate the pros and cons of regulation and competition frameworks. One must understand their differences and effects in order to choose the model that will be the most beneficial for the growth of a specified market sector.
Sector-specific regulation (SSR) framework relies on ex ante approach, while competition framework uses post ante approach to business intervention. Both systems have their own flaws and strengths. Ex ante approach allows businesses a higher level of certainty due to clearly defined price limitations and investment requirements. These restrictions can stabilize the market and prevent abuse and monopolization. On the other hand, they can hinder the progress due to the fact that the evaluations necessary to set the restrictions are limited. The regulators that set the restrictions require a great amount of information in order to be able to produce a realistic evaluation. This assessment will require a lot of time and the information costs will be very high. Subjective judgment and lack of understanding of technical aspects of some products will affect the regulators’ ability to set reasonable restrictions. As a result, SSR framework can force the market to function under unfair guidelines that will harm consumers. It will be easier to determine whether the price is fair through post ante analysis. However, this framework makes it extremely difficult for new entrants to integrate in the market.
Another important difference between regulation and competition approaches lies in their basic policies. SSR policy is based on a set of allowances that determine the limits that businesses must respect. Competition policy is based on a set of rules that forbid certain kinds of actions and behaviors. This position is advantageous because it does not limit a company’s potential while denying it the right to act in a way that will harm consumers. Due to the specifics of this approach, it is easier to subject competition policy to the rule of law and make it independent from the pressure of politics and other external factors that can influence the authorities responsible for sector-specific regulations.
Regardless of their differences, both sector-specific regulation and competition approaches are used today. Sector-specific regulations usually incorporate some of the competition principles in order to make this approach more flexible. However, competition policy refutes any kind of regulations. It focuses on prohibitions that aim to prevent monopolization. Both these frameworks must be used together, each performing its distinct role for achieving the best result.
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