ABSTRACT
It has been the failure of specific markets to produce and allocate goods efficiently, together with wider social and strategic objectives identified as being in the public interest, that has provided the rationale for the economic regulation of industry. Traditionally, economists (such as Bator, 1958), have distinguished two main sources of market failure, namely: the abuse of market power by firms operating under conditions of monopoly and oligopoly and the presence of externalities, both resulting in a distortion of market forces. In addition to these, asymmetry in the availability of information to do with prices and product quality has been increasingly regarded as forming a major source of market failure.1 Other motives
for adopting economic regulation have been such issues as unemployment, the strategic importance of industries, and income redistribution. In the case of many of the transport industries, aspects of safety and financial instability encouraged governments to introduce economic controls. As regards distributional objectives, concern centred on achieving a more equitable balance of income and wealth, but, as Kay and Vickers (1988) have argued, these are matters that are better left to more efficient instruments of public policy.
