ABSTRACT
The initial economic rationale for regulation was based on the existence of large economies of scale. Although the first state regulatory boards were established in 1874, regulation at the national level did not begin until 1887 with the establishment of the Interstate Commerce Commission. American Telephone and Telegraph fought deregulation of the telecommunications industry, and the major air carriers led the fight against airline deregulation. Governments enact regulations for a variety of reasons. For example, the Food and Drug Administration was established in 1906 to protect consumers. If regulation were detrimental to regulated firms and served the interests of consumers, regulated firms would welcome deregulation. Deregulation resulted in immediate improvements in the railroads' economic performance. Deregulation also enabled the railroads to increase rates in markets in which they had a comparative advantage, such as the transportation of bulky commodities like coal, and decrease prices in markets in which they faced stiff competition.
