Deregulation refers to a decrease in state or federal government oversight of industries and business. Characterized by repeal of laws that restrict trade and competition, deregulation is a major component of a capitalist model. Proponents of deregulation cite systemic economic benefits; industries may become more efficient in deregulated economies.
Competition
Deregulation lowers barriers to entry in a given industry. When more firms enter an industry, competition increases and consumers have more choices for products and services. Individual businesses tend to decrease prices, to achieve a more competitive position in the market.
Cost Savings
Deregulated industries provide cost savings to customers. By greatly reducing or eliminating tariffs, deregulation can lower prices; company profits increase and cost savings can be passed on to customers.
Reduced Bureaucracy
Society can benefit from a reduction of bureaucracy. Resources not spent on regulation can be channelled to other programs.
Consolidation
Deregulation aids industry consolidation. For instance, a 1997 law allowing out-of-state holding companies to buy banks allowed strong banks to acquire weaker-performing banks.
Considerations
Even proponents recognize certain pitfalls of deregulation. For example, the banking crisis that began in 2007 was in part caused by deregulation of banks in the 1990s. Laws allowing banks to sell exotic instruments, such as mortgage-backed securities, complicated the crisis when valuing those securities became excessively difficult.
