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Content: Since the terms of a regulated exchange
are coerced, they are against the judgment of at least one of the participants
in the transaction. The purpose of regulation is to have government intervene
in order to force an exchange that would not be agreed upon in free market. Government regulation occurs
when: ( 1) undesirable market structures are said to exist (i.e., fewness
of firms); ( 2) there is a perceived need to conserve and efficiently use
a natural resource; ( 3) significant negative economic externalities (e.g.,
pollution) are associated with a firm's activities; ( 4) the market or other
conduct of a firm is judged to be socially undesirable (e.g., price discrimination); and (5) there is a desire to control or dilute large power blocks in the
economy (e.g., the strategic position of utility companies). These reasons
primarily involve perceived or actual "market failures." The term, market failure,
implies that the market is a means to certain desired ends.