| Existing theories on the origin of regulation may be broadly classified as either the public interest theory or the capture theory. However, in analyzing the economic forces (such as changes in demand and technological conditions) at work in the regulated industries and identifying appropriate public policies for the industries, both theories fail to provide satisfactory explanations and accurate predictions due to the fact that the public interest theory ignores the distributional aspect of regulation or deregulation and the capture theory neglects an important role played by consumers in the political process of regulation or deregulation. This study presents a model of regulation that includes some of elements in both theories. The basic idea of the model is that regulation consists of a set of regulatory constraints on the behavior of participants in an industry and that the same participants may be able to maintain the prevailing set of regulatory constraints, or new participants may be able to change the prevailing set of regulatory constraints through a successful formation of a winning coalition. The trend towards deregulation in the last decade, which has affected financial, telecommunication, and transportation industries, has give rise to both theoretical and empirical work to explain the existence of regulation or the movement toward deregulation. In this study we model regulation and deregulation as possible outcomes of an n-person cooperative game with side payments and implement the model for the cases of the American telecommunication industry, the American airline industry, and the bus industry in Taiwan. Through the analysis of the regulatory game, we investigate the economic forces which made price and entry regulation a solution to the regulatory game on one occasion and made deregulation a solution on another occasion. |
