Introduction
This Paper considers the potential rationale for regulatory intervention in an industry and the alternatives that are available. The concept of pareto-efficiency is introduced, and then some of the real world conditions which prevent this optimal state from being achieved are discussed. Alternatives for overcoming problems of consumer bargaining power are discussed, focussing on consumer ownership options and regulatory intervention.
Pareto-Efficiency
The gold standard of welfare economics is the pareto-efficient allocation of resources. Pareto efficiency occurs when it is impossible to make any one individual better off without making at least one other individual worse off. This may require that anyone who is made worse off is compensated by those who are made better off: if the loss is less than the gain then an improvement in pareto efficiency will occur.