Economic regulation may be necessary in situations where a market fails to function effectively and intervention is warranted to address the sources of market failure and protect standards and ultimately the users of the markets.

Regulatory policy is related to competition policy in that both are broadly directed towards ensuring the effective functioning of individual goods and services markets within the economy.

The difference between the two is that regulation has more permanency: competition policy tends to be applied to markets temporarily (i.e. to fix an identified area where competition may be weak); whereas regulation tends to be an ongoing (or even permanent) feature of markets where oversight by a regulatory authority is necessary.  For example, regulation is used in cases of natural monopolies (where the objective characteristics of a market mean that only one firm can be sustained in the market), network markets or where competition is not possible due to high sunk (irrecoverable) costs.

Regulation has developed over the years, including the advent of competition-based regulation.  For example, the regulatory concept of SMP (significant market power) is basically the same as the competition law concept of dominance, and this has led to more tailored solutions to regulatory issues compared with in the past.  The development of competition-based regulation over the years reflects the economic maxim “competition where possible, regulation where necessary”.

Examples of markets that are subject to economic regulation are: utilities (electricity, natural gas and water); banking; and insurance.

However, all markets are subject to some form of regulation, for example health and safety standards, qualifications of practitioners, organisational form (for example, whether practitioners can organise themselves as limited companies or as part of multidisciplinary practices) and conduct requirements.

In terms of examples beyond those markets mentioned above, regulation occurs in the professions (solicitors, barristers, architects, engineers, doctors, dentists, veterinary practitioners etc.).  In recent years, we have seen the ‘professionalisation’ of teachers in Ireland, with registries, qualification requirements etc.