| The 1980s and 1990s might be characterized by the great crusade of market forces against large government, from advanced countries to developing countries. Many sectors were deregulation under free market mechanisms, such as telecommunications, electricity, railways, waters and commercial airlines. Many of these infrastructure services have generally been viewed as natural monopolies and supply responsibilities have often been given to state-owned or privately owned monopolies whose prices, investment programs, labor policies, rules governing entry of competing suppliers and services quality are subject to government control, or what we called 'economic regulation'(Joskow,1989). The term "deregulation" generally means the abolishment of certain rules in the economic structure of a society, which enable the respective companies to act with more freedom, according to their entrepreneurial spirit. The general economic ideal behind deregulation is the neo-liberal viewpoint that only in fully deregulated markets real competition is possible. But what has come to be called the deregulation movement all over the world.One easy answer would be that this was a special case, a one- shot response to the peculiar macroeconomic and political conditions of the late 1970s. if this is true ,why the deregulation have not been finished after two decades. Seen in the light of public interest theory, the reasons behind the deregulation was reduce government involvement in industries, increase the efficient of regulated firm, and improve the consumer's welfare, and curb the power of monopoly or other public enterprise. But in the views of the economic theory of regulation, there exist two reasons for deregulation: (1) technological or demand changes eliminate the market failure, or (2) regulation is revealed to have been a mistake by the ideas of this theory, thus the fundament of government intervention has been dispersed or eliminated. But why did deregulation was not happed at same time where the technological changes take place in all of industries, such as railway and electricity. The government failure may interpret the happen of deregulation, But could not tell us where and when this changes become realizable.In this paper, we will give an industries organization economics and firm behaviors interpret of the deregulation. The main results of our analyses are that the fringe entry by the potential entrant was the sufficient condition for the deregulation at some industries. To get this point, we build a two-element regulation mechanism model, which we defined as an entry-and-price regulation. In this literature, regulation is generally viewed as mechanism with which the firm and regulatory play game in order to get them-self optimal utility. Unlike other studies, we focus on the structure of the regulated industry, the regulatory commitment, who is the principle in our model, and the power arrangement of regime, Such element determinate the equilibrium or steadiness of the entry-and-price regulation. We find that the little of the number of the regulated firm, the more of the product's differential, and the power more integration, the regime become more stable. This first step will give a background of the fringe entry.The second important ingredient of our model is the introduction fringe entry, which we defined as follows, under the regulated industry, the potential entrant take a strategy to eliminate or decrease the response by the regulatory and incumbents to its entry. The fringe in our paper means the cross-elasticity between the product of entrant and incumbent was little, and the entrant capacity was less than the incumbent. Under these assumptions, we take the product differential, incumbent number, and power arrangement into our model, and get the condition with which fringe entry easier to take place. We also find follows the fringe entry success, the old-regulation was loosed. With the regulatory control power decreasing, the deregulation becomes the optimal choice for the society welfare improv... |
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