Unit 3: Instruments of Regulation

Introduction

Services are imbued with the public interest and often unregulated market forces would result in:

• disruptions that are harmful to the economy,
• price discrimination that hinder economic and social development.
• monopolies restricting supply, resulting in high prices

Any of the for above factors could for example, lead to prices far above marginal cost in poor areas where there is no competition, while charging prices near or below marginal cost in competitive areas might be considered unacceptable price discrimination. On the other hand, prices far above marginal cost on discretionary services, such as call forwarding or voice mail, while charging prices near marginal cost on line rental might be socially beneficial if it facilitates expansion of the system. It is thus critical that regulatory authorities use regulatory instruments that provide stability for delivery of services.