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Partial Industry Regulation: A Monopsony Standard for Consumer Protection
Ayres, Ian Brathwaite, John
Ayres, Ian
Brathwaite, John
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Abstract
Regulations usually apply to all members of an industry. Professors Ayres and Braithwaite propose that in some situations "partial industry" regulation is superior to all-or-nothing regulatory policies. Partial-industry regulation governs only a part of an industry, leaving other parts either unregulated or disparately regulated. Regulating only an individual firm (or subset of firms) can engender a system of checks and balances in which the regulated and unregulated portions of the market each curb the excesses of the alternative form of market governance. Partial-industry regulation can thus promote efficiency by restraining monopoly power without giving rise to the evils of either captured or benighted regulation. The authors' theories of partial-industry intervention gain support from an analysis of monopsonist behavior. Governments interested in promoting consumer welfare should often emulate what a monopsonist consumer would do. One way to reconceive of the regulator's decision whether to subsidize fringe competition is to ask if a hypothetical downstream monopsonist would subsidize upstream entry to "second-source" the product. A monopsony standard provides not only a powerful tool for analyzing how government might intervene to protect consumers, but also a limiting principle for analyzing when intervention is appropriate.