Compare and contrast the economic effects of regulation and deregulation on surface and air
transportation.

Write an essay on Government Policy. Compare and contrast the economic
effects of regulations and deregulation on surface and air
transportation.

Economic effects of regulation and deregulation of surface and air transportation

Introduction

Governments intervene in the private markets by coming up with regulatory

policies to govern the markets. Through regulation, governments adjust income

distribution and resource allocation to what they consider appropriate. They do this to

ensure the welfare of people by preventing unfair practices such as monopolizing the

markets by few individuals and therefore limiting the benefits of the rest, and to protect

the industry, among others. Heavy government regulation has been imposed on the

transportation industry in the United States.

Effects of regulation and deregulation

Various factors are affected in the regulation of the transport industry. These

include the regulation on prices, rate of return, entry and exit, condition of service,

financial arrangements and antitrust regulations. In the transport industry, the

government sets regulations for the maximum and minimum prices that can be charged

to the passengers. This protects the customers from unreasonably hiked prices.

Minimum pricing also protects the industry from practices like predatory pricing or

monopolizing the market (Bailey and Pack 1995).

In rate of return regulation, governments regulate carriers on the basis of rates. A

carrier that made returns that were more than fair had its change proposal disapproved.

In condition of service regulation of air transport, the government regulates what type of

aircraft is used and the capacity it offers. The frequency of service is also regulated.

Exit and entry into certain industries and routes is also regulated. After

deregulation, new entrants do not need to prove their need for a new service.

Regulation made entry to routes difficult and a license was necessary for both land and

air transport. After deregulation, it was much easier to enter into routes. When the exit

from routes was regulated, it was hard for carriers to exit from routes. Since

deregulation, it is much easier to exit routes (Bailey and Pack 1995).

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