Thursday, June 26, 2008

Gimme Shelter

Ooh, see the fire is sweepin'
Our very street today
Burns like a red coal carpet
Mad bull lost its way
--Rolling Stones

Common wisdom is that businesses dislike government regulation. A plausible rival hypothesis is that industry participants welcome regulation. Viewed through a strategic lens, regulation raises barriers to entry, thus protecting the franchises of incumbents.

Although popular history teaches that trustbusting activity of the late 1800s - early 1900s helped reign in rampant monopolies in oil, railroads, banking, and other sectors, Rothbard (2002) offers compelling evidence that incumbent firms proactively sought regulation as a means to preserve franchises that were under attack by slews of upstarts.

As such, regulation serves to reduce competition.

References

Rothbard, M.N. (2002). A history of money and banking in the United States. Auburn, AL: Ludwig von Mises Institute.

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